Perspective: Morning Commentary for July 14

By: Arlan Suderman, Chief Commodities Economist

Thu, 14 Jul 2022, 13:27

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

July 14 – Stock futures tumbled early today on disappointing bank earnings reports, with this morning’s inflation data released within that bearish context amid an inversion of the 2- and 10-year Treasury yields. Energy prices followed stocks lower on recession fears, while the food-based commodities tried to hold their ground with modest losses, and even gains at times. The VIX is trading near 28 this morning, suggesting elevated levels of fear, although there are few signs of panic at this point. The dollar index is trading near 108.9, after posting fresh 19-year highs. Yields on 10-year Treasuries are trading near 3.00%, while yields on 2-year Treasuries are trading near 3.24%. Crude oil prices are down roughly 3%, while the Ags were mixed to higher in overnight trade.

First time claims for unemployment benefits totaled 244K in the week ending July 9, up from 235K the previous week, and above analyst expectations of 234K claims. That pushed the four-week moving average up to 235.75K claims, up from 232.5K the previous week. Continuing claims fell 41K to 1.331 million in the week ending July 2. So, the weekly claim numbers are trending higher, suggesting a slowing economy, while the continuing claim numbers remain near five-decade lows, suggesting that those people are finding new jobs relatively quickly.

The producer price index rose 1.1% month-on-month in June, up from 0.8% the previous month, and up from analyst expectations that it would remain unchanged at 0.8%. The headline number put the June PPI up 11.3% year-on-year, up from 10.8% the previous month, and beating analyst expectations of 10.4%. However, the numbers were better once food and energy were set aside, although the average consumer doesn’t have that option. The core PPI rose 0.4% month-on-month in June, down from 0.7% the previous month, and below analyst expectations of 0.5%. The core PPI was up 8.2% year-on-year in June, down from 9.7% the previous month. Wall Street took these numbers in stride in light of yesterday’s high consumer price index, and this morning’s poor bank earnings reports. In other words, much of the bad news was already priced into the market, especially considering the “better” core inflation numbers, with energy prices considerably lower than they were in mid-June.

Nonetheless, the focus remains on the Federal Reserve’s anticipated response to this week’s inflation data. Fed fund futures traded 88% odds early this morning that the Fed will raise its benchmark interest rate by 100 basis points in two weeks. They were trading near certainty that it would be “just” a 75-basis point rate hike ahead of yesterday’s inflation data, while the expectation was 50 basis points earlier this summer. Fed fund futures are then pricing in expectations of another 125 basis points in the following three meetings to close out the year, which would make 375 basis points for the calendar year. The debate then will be whether a) is that enough when combined with shrinking the balance sheet to tame inflation, and b) will the Fed’s actions be more detrimental to the economy than the inflation itself? The answers to those questions will play out as the nation goes to the polls in the mid-term elections this fall, with significant implications for future fiscal economic policy.

Russia, Ukraine, Turkey, and the United Nations reached a preliminary agreement to allow exports of Ukrainian grain from three ports, according to officials close to the talks, although one person familiar with the negotiations stated that it’s too early to say that an agreement is imminent. The Russian delegation reportedly had not yet received approval from President Putin. The tentative agreement would allow for mines to be removed from the ports, including the main port of Odessa. Grain ships traveling to Ukraine ports would be inspected by Turkish officials to certify that they were not carrying military assistance. The ships would be loaded with grain, and then escorted to safety by Ukrainian vessels, with a cease-fire to protect the vessels as they moved to safer waters. The first obvious question is, can Russia be trusted not to sweep in and take possession of these ports once the mines are cleared, since it has clearly stated previously that control of the ports is one of its primary aims? The second question is, who will provide insurance to these ships, and at what cost?

U.S. weather remains the single biggest fundamental factor for the grain and oilseed markets in the weeks ahead, although it may not look like a weather market at times due to volatility in the outside markets. The outlook remains very hot for the Plains over the next two weeks, with that heat periodically pulsating east across the Midwest. Rainfall will be limited to cluster storms riding down the back side of the ridge. The placement of those storms will be critical for crops, but difficult to forecast. There are signs this pattern may hold into mid-August. My agronomist training tells me that trend yields will be difficult to achieve this year for corn, and likely for soybeans as well, if this forecast verifies. What we do not know yet is the scope of the lost yield. Some forecasts would suggest that the yield losses will be modest, focused on western areas of the belt, while other forecasts leave the door open for more significant losses. A lot depends on the track and coverage of those cluster storms over the next 10 days as the bulk of the corn crop moves through pollination.

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Perspective: Morning Commentary for August 14

August 14 – The S&P is on the cusp of new highs again this morning following another relatively quiet night in stock futures. This week’s inflation data was a non-event for the markets, as it came in at to modestly below expectations, leaving this morning’s retail sales numbers to finish out the week. Those numbers came in softer than expected, leading to lower Treasury yields and increased hopes that the Federal Reserve will back off its rate hike ideas, which supported stock futures. The VIX continues to trade near 14, which is near 2026 lows. The dollar index is trading near 99.6. Yields on 10-year Treasuries are trading near 4.65%, while yields on 2-year Treasuries are trading near 4.13% as the yield curve continues to steepen. WTI crude oil is trading near $81 this morning, while Brent trades near $87 per barrel. The roller coaster continues in the grain and oilseed markets, with prices higher this morning on escalating tensions in the Russia – Ukraine war.

Arlan SudermanFri, 14 Aug 2026, 13:35

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