March 24 – Stock futures gapped higher overnight as traders hoped that President Trump would take a more measured approach to his tariff plan on April 2nd. Weekend news reports suggest that the Trump Administration is likely to exclude some sector specific tariffs in its reciprocal tariff plan to be unveiled next week. Traders also are looking ahead to this week’s PCE inflation data, which they expect to follow the trend of recent reports of easing inflationary pressures in February. The VIX is trading at a three-week low near 19 this morning, while the dollar index is trading near 104.1. Yields on 10-year Treasuries popped higher to trade near 4.30%, while yields on 2-year Treasuries are trading near 3.99%. Crude oil prices are modestly higher this morning on the improved economic outlook, while the grain and oilseed sector was mostly in the red, as traders continue to worry about what might happen with the 25% tariffs on Canada and Mexico next week.
U.S. Senator Steve Daines of Montana led a group of U.S. business executives to China over the weekend to attend China’s annual top-level economic forum. Daines also served as an envoy to discuss economic issues with Chinese leadership. China’s Premier Li Qiang – the #2 political figure in China – met with Daines on Sunday for a candid exchange about the growing tensions between the two countries. Daines is a supporter of President Trump’s agenda, and he served to increase communication between China and the United States amid the current 20% tariffs being charged to products coming from China, and ahead of next week’s reciprocal tariff announcements.
Peace talks continued in Saudi Arabia today between the United States and Russia as the two sides seek common ground for a lasting peace in Ukraine. Negotiators are first working on the details of a ceasefire agreement, before moving on to a broader agreement for longer-term peace that will guarantee both sides the lasting security that they seek. One of the first objectives is to reach an agreement that will guarantee the safe flow of trade through the Black Sea of commodities vital to the world economy, including food and energy. Aside from the talks, a healthy dose of skepticism remains in both Ukraine and in the broader European community that there can ever be lasting peace in the region. The level of trust in this region of the world is near zero when it comes to Europe and Russia and the territories in between. For now, efforts are being made to honor a moratorium on attacks on energy infrastructure by both Russia and Ukraine. Russia would also like to revive the Black Sea Grain Initiative, which allowed it to inspect all ships coming and going from Ukraine. It would often slow-walk those inspections, limiting exports from Ukraine by doing so. Ukraine has little incentive to revive the initiative, but it hasn’t had the input in the talks that it would like, leaving the door open that negotiators might try to revive it. The markets will see the peace talks as bearish for wheat prices. A return to peace in the region probably doesn’t change the flow of wheat much, as the war didn’t really slow the flow that much. But it would be expected to reduce shipping costs, while allowing Russia’s ruble to strengthen somewhat.
The possibility of peace in the Black Sea remains a threat to China amid fears that peace in Ukraine could move Russian President Putin into a closer working relationship with U.S. President Trump, further isolating Chinese President Xi Jinping, who represents Russia’s strong neighbor to the south. Recent data indicates that cargo movement on the China Railway Express dropped 43% in February, according to media reports. This rail is part of China’s Belt and Road Initiative that seeks to increase trade by moving cargo from China westward into Russia and beyond into Europe. However, Russia recently stepped-up inspections of cargo on the railway, delaying some trains for up to three months. Overall volume has dropped by 26% over the first two months of this year. Concerns over the increased inspections and delays resulted in discussions at China’s “Two Sessions” policy meeting earlier this month. Leaders fear that it may represent a deteriorating relationship with Russia as it increasingly engages with the United States to discuss peace in Ukraine.
Crude oil prices followed the stock market higher overnight as traders consider the possibility of a more measured approach to Trump’s reciprocal tariff plan that might reduce the stress on the economy. However, the 25% tariffs are already in play for Canada and Mexico – albeit paused until next week – leaving traders concerned about how the Trump Administration might handle them going forward, and what the negative impact might be for the grain and oilseed sector. Corn traders are also worried about next Monday’s USDA quarterly stocks and planting intentions survey results. The stocks reports are known for their surprises, but concerns are very elevated this year that we could see a high corn acreage number. That fear continues to keep a lid on speculative buying in that market. The combination of the above continues to limit buying in the sector, while global wheat and corn stocks remain tight enough for now to stimulate end user buying on breaks as well.
