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Perspective: Morning Commentary for June 29

By: Arlan Suderman, Chief Commodities Economist

Today's Perspective Video: Tough June. What's Next?

June 29 – Stock futures moved cautiously higher overnight, as we approach the end of the month, and the end of the fiscal quarter. More skirmishes were seen between Iran and the United States over the weekend, but traders chose to focus on the fact that yet another agreement had been reached to halt hostilities. It’s a holiday shortened week of trading on Wall Street, with the markets set to close on Friday as America celebrates its 250th birthday. Ahead of that, we will get the June jobs report on Thursday morning. The VIX is trading near 18 this morning, while the dollar index consolidates near 101.2. Yields on 10-year Treasuries are trading near 4.38%, while yields on 2-year Treasuries are trading near 4.11%. WTI crude oil is trading just above $70 per barrel this morning, while Brent trades below $73 per barrel. The grain and oilseed markets were mostly weaker ahead of tomorrow’s big USDA quarterly grain stocks and planted acreage reports, with the exception of firmer hard wheat prices.

The conflict with Iran escalated to its highest point of the past couple of weeks over the weekend. An Iranian drone hit another tanker in the Strait of Hormuz on Saturday, damaging its bridge. Iran has periodically targeted ships trying to use the U.S. recommended route of transit near the Oman coast to pass through the Strait, whereas Iran insists that all ships follow its recommended route near its coast. U.S. Central Command reported that U.S. Navy and Air Force jets conducted strikes on 10 Iranian military targets at multiple locations in and near the Strait of Hormuz as a consequence for Iran’s drone attacks on ships. It added, “Iran was given a chance to honor the ceasefire agreement but elected not to.” It went on to say that it carried out the strikes, “in direct response to continued Iranian aggression against commercial shipping” by targeting Iranian military surveillance, communications, air defense, drones storage and mine-laying facilities. Iran countered the U.S. strikes with strikes of its own against U.S. military bases in the region, but there were no reports of notable damage once again.

Iran accused the United States of not keeping the interim agreement in the Memorandum of Understanding that included a ceasefire in Lebanon, although there were also reports last week that Iran was giving orders to Hezbollah to strike Israel from Lebanon. Israel and Lebanon again reached another peace agreement over the weekend, but Hezbollah rejects that agreement. All of this fits into Iran’s strategy that I outlined in Friday’s commentary to continue to “poke the bear.” Iran doesn’t want an all-out attack by the United States, but it doesn’t believe that President Trump would do that ahead of the midterm elections. President Trump wants cheap gas prices ahead of the elections. But the Iranian Revolutionary Guard believes that it can defeat President Trump at the ballot box by pushing gas prices higher. It can seek to do so by creating continuous disruptions that result in these skirmishes.

China’s central bank injected 457.5 billion yuan ($67.3 billion) into its financial system via reverse repo operations today. The move seeks to add liquidity to the financial system in China, boosting market sentiment. It’s not a direct injection into the financial system, but an offer of greater liquidity via attractive rates, similar to tools used by many other central banks around the world, which use short-term overnight rates as a tool for guiding money-market conditions. The People’s Bank of China offered 300 billion yuan ($44.2 billion) through the new overnight operation, while injecting another 157.5 billion yuan ($23.2 billion) through its regular seven-day reverse repo, with the rate unchanged at 1.4%. In the program, the PBOC offers cash to financial institutions in exchange for securities, with an agreement to reverse the transaction later. Adding the overnight version allows the PBOC to respond more precisely to day-to-day liquidity pressures, especially around month-end and quarter-end when funding costs can be more volatile. The PBOC’s decision not to publicly announce the overnight rate suggests that it wants to avoid weakening the signal from the seven-day policy rate or creating confusion over possible rate cuts.

Corn and soybean futures came under pressure overnight ahead of month-end, quarter-end, and tomorrow’s highly anticipated USDA quarterly grain stocks and planted acreage reports – known for their market-moving surprises. Looking at the average trade guesses ahead of tomorrow’s reports, we see that the market expects corn acreage to fall by 346K from the March planting intentions survey results, while soybeans rise by 669K acres, and wheat by 83K acres. That’s a net increase of 406K acres for these three crops. Corn stocks as of June 1 are expected to come in 765 million bushels higher than year ago levels, while soybeans come in 38 million bushels higher, and wheat up by 79 million bushels. There’s nothing bullish about the above numbers, but these are already largely priced into the market. Bearish surprises could add selling momentum, while bullish surprises could reverse sentiment. After that, the focus will be on weather. The summer weather pattern often gets locked in over the Fourth of July holiday. Will this week’s hot high pressure be transitory (expected in a strong El Nino year) or will it get locked in for pollination and pod set? The tone for the summer is likely set over the next 5 – 7 days.     

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Perspective: Morning Commentary for June 29

June 29 – Stock futures moved cautiously higher overnight, as we approach the end of the month, and the end of the fiscal quarter. More skirmishes were seen between Iran and the United States over the weekend, but traders chose to focus on the fact that yet another agreement had been reached to halt hostilities. It’s a holiday shortened week of trading on Wall Street, with the markets set to close on Friday as America celebrates its 250th birthday. Ahead of that, we will get the June jobs report on Thursday morning. The VIX is trading near 18 this morning, while the dollar index consolidates near 101.2. Yields on 10-year Treasuries are trading near 4.38%, while yields on 2-year Treasuries are trading near 4.11%. WTI crude oil is trading just above $70 per barrel this morning, while Brent trades below $73 per barrel. The grain and oilseed markets were mostly weaker ahead of tomorrow’s big USDA quarterly grain stocks and planted acreage reports, with the exception of firmer hard wheat prices.

Arlan Suderman
Arlan Suderman
  • Grains & Oilseeds
  • Energy
  • Dairy
  • Renewable Fuels
  • Cocoa
  • Coffee
  • Cotton
  • Sugar
  • Meats & Livestock
  • Forest Products

Perspective: Mid-Day Commentary for June 26

June 26 - Stocks trended firmer throughout the morning, moving into positive territory by mid-morning. That allowed the VIX to slip back to trade near 19 by midday, while the dollar index traded near 101.2. Yields on 10-year Treasuries are trading near 4.38%, while yields on 2-year Treasuries are trading near 4.09%. WTI crude oil is trading near $69, while Brent trades near $72 per barrel, despite increased tensions in the Strait of Hormuz. Wheat prices remain under pressure, led by double-digit losses in Kansas City, while corn and soybean prices are slowly attempting to crawl back into positive territory at midday, combined with some renewed buying in the edible oils for biofuel.

Arlan Suderman
Arlan Suderman
  • Grains & Oilseeds

Perspective: Morning Commentary for June 26

June 26 – Chip stocks weighed on stock futures overnight, contributing to general weakness across the board as Iran tries to take control of the Strait of Hormuz once again, testing the fragility of the ceasefire. The VIX elevated to trade near 21 this morning, while the dollar index slipped lower to trade near 101.1. Yields on 10-year Treasuries are trading near 4.40%, while yields on 2-year Treasuries are trading near 4.10% as the yield curve steepens a bit this morning. WTI crude oil traded back below $70 per barrel this morning, as Brent traded near $73, while the grain and oilseed markets traded mostly weaker as well ahead of the weekend.

Arlan Suderman
Arlan Suderman
  • Grains & Oilseeds
  • Energy
  • Dairy
  • Renewable Fuels
  • Cocoa
  • Coffee
  • Cotton
  • Sugar
  • Meats & Livestock
  • Forest Products
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