Perspective: Morning Commentary for January 24

By: Arlan Suderman, Chief Commodities Economist

Mon, 24 Jan 2022, 14:09

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

January 24 – “Fed Fear” continues to grow on Wall Street, as traders fret about how this week’s Federal Reserve meeting might change the market landscape in the months ahead. The VIX, Wall Street’s “fear index,” traded near 33 this morning, reaching more than a seven-week high as anxiety grows ahead of this week’s meeting of the Federal Open Market Committee on Tuesday and Wednesday. The dollar index firmed to a nearly two-week high to trade near 96.0, while yields on 10-year Treasuries fell to trade near 1.72% as money flowed to the safe-haven assets. The broader commodity sector tried to push higher overnight, but fresh selling emerged to pressure prices as the VIX rose above 30. I’ve observed that it’s difficult for a commodity to sustain a rally when the VIX is above 30 unless that asset has a strong story of its own. The same was seen in both the crude oil market and in the Ags, with prices sliding off session highs as the VIX rallied.

The Federal Reserve presents perhaps the greatest risk to the financial markets in 2022, depending on how well it manages this year’s inflation problem. It painted itself into a corner with unprecedented stimulus, intentionally allowing the economy to run hot, which has now created significant wage inflation, supply chain disruptions and inflation at 40-year highs for the consumer. There’s sharp disagreement within the FOMC on how the Fed should manage the situation that it has created, which will create some challenges for Fed Chair Jerome Powell. There’s no previously traveled roadmap for how to normalize both interest rates and the balance sheet in this scenario. The Fed is in unprecedented territory. How it manages the economy in the months ahead will determine to a great extent whether we slide out of this situation unscathed, drop into a recession, or something somewhere in between.

But it’s not just about whether the Fed can normalize interest rates and its balance sheet without sending us into recession. Wall Street is also worried about having its stimulus candy taken away from it. The markets loved the stimulus candy that fed them through the pandemic – the ever-flowing stream of money that continued to push values higher. They’ll need to stand on their own now, fueled or not by the fundamentals of the economy. That’s quite possible. The markets have certainly rallied on solid fundamentals before, but that will take sound fiscal policy, which is in disarray at the moment. As such, the rotation of money out of the equities looks to continue as we start the new week. The commodity sector initially benefited notably from that rotation as fund managers sought to park money where they felt that it would protect their portfolios against inflation. But money flow into the commodities slowed as well when the VIX approached, and then exceeded, the 30 level.

The Chicago Fed national activity index is a weighted average of 85 existing monthly indicators constructed to have an average value of zero when the economy is growing at trend levels, and standard deviation of one. The index for December fell to -0.15, down from 0.44 in November and below analyst expectations of 0.25. This means that the economy was running hot – growing at above trend levels – in November, but that it cooled to grow at a slower-than-trend pace in December. This will no doubt increase the debate in this week’s Fed meeting between the hawks and the doves. The doves will argue that the economy is already slowing, and that therefore the Fed needs to hold off normalization plans. The hawks will argue that December’s slowdown was temporary due to the Omicron surge, and that the Fed should act now to head off the anticipated return to over-heated conditions once this wave of Covid slows again. The minutes to this week’s meeting should provide for good reading. Unfortunately, we’ll need to wait for three weeks for the minutes to be released. We should be well past this Omicron peak by that time.

The remaining dry spots in Argentina that have remained quite hot should fill in with added rains by Wednesday before the pattern reverts drier once again. Rains of the past 10 days have been quite good for Argentina. They did not fix all that was wrong in Argentina, but they should restore some of the yield potential. A drier trend allowed for significant harvest progress, along with early safrinha corn planting, in northern areas of Brazil’s crop belt, although a wetter pattern is expected to return to create disruptions again by the last half of this week. The signals continue to be quite mixed for the month of February, which is a critical month for crops in Argentina, but the bias is to the dry side, especially for eastern crop areas. Nonetheless, the rains of the past 10 days took some of the steam out of the bull, removing the strong fundamental story they had for now. As such, the rise of the VIX above 30 reflecting the elevated fear levels on Wall Street create the near-term story that will drive money flow. Wheat managed to hold on to overnight gains, with traders focused on escalating tensions on the Russia / Ukraine border – its story for now.

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Mike CastleThu, 06 Aug 2026, 13:24

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Matt ZellerWed, 05 Aug 2026, 12:39

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Matt ZellerTue, 04 Aug 2026, 12:43

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