Perspective: Morning Commentary for March 3

By: Arlan Suderman, Chief Commodities Economist

Thu, 03 Mar 2022, 12:25

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

March 3 – Wall Street tried its hand at multi-tasking this week as traders focus on both the Ukrainian war and on the Federal Reserve’s attempts to tame inflation. Unfortunately, the two issues are closely tied together now as energy prices soar due to the war. Nonetheless, the combination provides times of market swings as traders digest their understanding of how the two issues will meld together. The VIX is trading near 31 this morning, while the dollar index is trading near 97.6, and yields on 10-year Treasuries are trading near 1.85%. Crude oil pries are more than 1% higher after setting new highs overnight, while wheat continues to lead the Ag sector higher as well due to fears of global commodity shortages due to the war in Ukraine. End user anxiety is growing.

Multiple explosions rocked Kyiv overnight as Russian forces slowly advance on the city. Those advances have been much slower than Russia anticipated due to the stiff resistance of the Ukrainian people. Yet, Russia has the greater force. There continues to be talk of negotiations, but those negotiations tend to go nowhere. Russian President Putin appears determined to do maximum damage to Ukraine, unleashing the full power and force of his military. Ukraine is determined to fight to the end. Sanctions keep driving Russia’s economy deeper into a hole, but it has done little to deter Putin to this point. Regardless of the outcome, we will likely see the Russian economy slide into a deep recession for some years as a result of the sanctions applied against Russia for the actions it has taken. The methods that Putin used to mount his attack on Ukraine will make it difficult politically for nations to justify removing those sanctions for some time after this is over.

Commodity prices continue to rise on the fear that the above will result in shortages on the world market that may last deep into this year, and possibly into the next. A quarter of the world’s grain is produced in this region, along with similar portions of fertilizer, while Russia is also the third largest producer of crude oil. The markets initially thought these supplies might be removed from the world market for the days it took for Putin to topple Ukraine. Now it is apparent that this conflict may become very long and drawn out. Furthermore, the sanctions will likely linger much longer, with the affects of the war hampering Ukraine’s ability to produce a crop in 2022. This shortfall in production in 2022 comes on top of production fears already in place due to fertilizer shortages, which are only made worse by this conflict. That’s not to mention the ongoing weather risks in South America, with rising risks in the United States and parts of Europe as well. That doesn’t mean that we’re going to run out of grain this year, but global markets are doing what they can to ration demand on the possibility that we could run out.

Traders will again be monitoring Federal Reserve Chair Jerome Powell’s comments today as he testifies before the Senate Banking Committee. His prepared comments should be very similar to those he delivered to the House Finance Committee yesterday, which Wall Street tended to like. It was clear from his comments that the Fed has a laser focus on taming inflation, although the details of the plan still need to be ironed out. Powell seems to favor a 25-basis point rate hike in two weeks when the Fed meets, but he left the door open to a 50-basis point hike if needed. His comments suggested that the Fed is not worried about high energy prices driving the economy into a recession, considering the tremendous amount of stimulus that is still in the economy. Instead, the Fed is steadfastly focused on bringing inflation under control. The other key question that Fed members are expected to address in two weeks is a schedule for starting to shrink the Fed’s balance sheet – removing a portion of the stimulus that’s currently in the economy. That would provide a more natural method for raising interest rates, with the primary focus likely on the mortgage-backed securities focused on the long end of the yield curve.

China’s economy is barely growing according to data released this week. That apparently has Chinese authorities considering a major shift in their policy regarding Covid-19. Rumors began circulating this week that it may be working on a path toward moving away from its zero-tolerance policy toward Covid that includes numerous lockdowns and restrictions that are strangling its economy. That won’t be easy though, because China’s vaccine’s are less effective even than those in the West, and its healthcare system is less developed over much of the country. It’s zero-tolerance policy to this point means that much of its population lacks the natural immunity of exposure that would help it deal with rapidly spreading variants. This will be a major challenge for China. It’s ability, or lack thereof, to transition its economy to one that can manage Covid rather than eliminate it will be key to its ability to compete as a major power in the world.

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Matt ZellerWed, 05 Aug 2026, 12:39

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Perspective: Mid-Day Commentary for August 4

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Mike CastleTue, 04 Aug 2026, 14:58

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