June 21 – The S&P 500 and Nasdaq both reversed course yesterday to close lower after pushing to new record highs, though the Dow Jones was able to hang in the green. Stock futures are pointing to a muted open, with the major indexes looking roughly unchanged from yesterday’s closes at the time of writing, while the VIX is up near 13.5, its highest level this month but still quite low compared to historical levels. The U.S. dollar is looking to end the week on a stronger note, touching fresh highs above 105.5 in the overnight session and now hovering above 105.4. Treasuries are slightly weaker on the day, with 10-year yields trading at 4.23% and 2-year yields just above 4.70%. Crude oil is continuing its recent push higher on the back of recent fundamental strength as well as rising geopolitical tensions in the Middle East, while the ags are mostly looking to stage a slight recovery.
U.S. exporters sold 21.7 million bushels of 2024/25 wheat in the week ending 6/13, coming in above even the high-end estimate of 18.4 million and marking the largest weekly sales seen since January. Much of the week’s business was to Asia, with the top four destinations being South Korea, the Philippines, Vietnam, and Indonesia, in that order. With a shrinking Black Sea wheat crop, more demand could be shifted to the U.S., with USDA addressing the issue on last week’s June WASDE by cutting Russia and Ukraine’s wheat crops by 5 MMT and 1.5 MMT, respectively, while increasing their U.S. wheat export estimate by 25 million bushels. Private estimates of Russian production continue to hang below USDA’s now 83 MMT figure, making it interesting to watch for developments in the weeks ahead to see if we get a further downward revision on next month’s report.
Old crop soybean sales were solid as well, coming in at 20.4 million bushels and representing a nearly four-month high. China was the featured buyer, followed by Egypt, then Indonesia. However, this morning’s export sales report showed disappointing corn sales of only 20.1 million bushels of old crop and 3.7 million bushels of new crop. The U.S. still remains on pace to surpass USDA’s 2.15 billion bushel export target by 2.7% in the 2023/24 marketing year, but 2024/25 sales have gotten off to a slow start thus far. The same can be said for new crop soybeans, with little incentive for China to lean on the U.S. with geopolitical tensions simmering and big South American supply expected.
Sticking with the theme of Chinese import demand, the ramp-up in trade tensions between China and the E.U. is continuing, with reports of China now considering an investigation into the import of E.U. dairy products. This follows China’s recently launched anti-dumping investigation into imports of E.U. pork products. These measures are being taken in response to the E.U.’s recent decision to hike tariffs on imports of Chinese electric vehicles and components, similar to a move taken by the U.S. Facing a difficult situation of weak domestic demand, China is turning to more overseas investment in an attempt to limit the impact of these rising trade restrictions and increase the presence of the Yuan as a more global currency. However, the Yuan is continuing to struggle, much to China’s ire, pushing to its lowest level in 2024 versus the dollar and further disincentivizing their central bankers from easing monetary policy despite continued signs of weakness at home.
Escalations between Israel and Hezbollah in neighboring Lebanon look to keep markets on edge heading into the weekend, with the two sides continuing to trade cross-border strikes at an increasing rate while ramping up rhetoric against one another, raising fears of a widening conflict. Iranian-backed Hezbollah has been launching strikes at Israel in parallel with their war in Gaza but attacks between the two side have escalated in recent weeks, including Israeli attacks on their supply chains through Syria and Iraq which have prompted harsh threats from Hezbollah leadership. After tumbling in late May/early June, the recent tightening of crude oil fundamentals, including yesterday’s sharper than expected U.S. crude stocks draw, has brought life back into the market and this background simmering of tensions looks to add additional support. Nearby WTI crude oil has now rebounded over 12.5% from its low roughly two-and-a-half weeks ago to trade near two-month highs, starting the day in the green yet again this morning.
