May 20 – Traders remain upbeat on Wall Street this morning, expecting both a resilient economy and rate cuts down the line – the best of both worlds. Yet, they also have their eye to Wednesday’s scheduled release of the minutes of the May meeting of the Federal Open Market Committee meeting, which says a little about how slow the data flow will be this week. The market is also digesting the implications of the death of Iran’s President Ebrahim Raisi, who was killed in a helicopter crash on Sunday. The VIX is trading near 12 this morning, while the dollar index is trading near 104.5. Yields on 10-year Treasuries are trading near 4.44%, while yields on 2-year Treasuries are trading near 4.83%. Crude oil prices are modestly lower this morning, while the grain and oilseed markets are pushing higher, led by wheat once again.
Iranian President Ebrahim Raisi is confirmed dead from a helicopter crash in poor weather in the mountains near the Azerbaijan border. The helicopter went down on Sunday, with the wreckage found early today. President Raisi was a hardliner who was seen as a possible successor to Supreme Leader Ayatollah Ali Khamenei. Iran’s constitution requires a presidential election within 50 days to fill the vacancy, Vice President Mohammad Mokhber is expected to assume the interim president role in the meantime. No notable policy differences are seen between the above options, although the president’s death comes at a time of growing discontent within Iran, as well as mounting international pressure due to its developing nuclear program and due to its support for Russia in its war with Ukraine. Today’s markets are assuming little immediate change to the geopolitical picture, although Raisi’s death does add more questions to longer-term geopolitical risks.
President Lai Ching-te was sworn into office earlier today, after being elected into office earlier this year. Lai, who previously served as vice-president of Taiwan, campaigned on a platform of strong independence from Mainland China. His swearing in markets the beginning of the third consecutive term for the ruling Democratic Progressive Party that stands for independence from China. He will serve alongside Vice-President Hsiao Bi-khim, who previously served as Taiwan’s top diplomat to the United States, so ties with the States are strong. Lai doesn’t believe that Taiwan needs to declare its independence from China, because it already operates as an independent sovereign country. Beijing openly despises both leaders for their independence stance. Lai emphasized both peace and sovereignty in his inaugural speech today. Taiwan remains a hotspot of relations with the West, with China’s President Xi Jinping promising that he will “reunite” Taiwan to the Mainland, while also making changes to both his leadership council and to China’s constitution over the past year or two to facilitate doing so.
The Federal Reserve is expected to release the minutes of its latest meeting held several weeks ago later this afternoon. The market reacted positively to what it saw as a more dovish tone by Fed Chair Jerome Powell following the meeting on May 1, but the minutes of the meeting are expected to reflect a bit more of a hawkish tone, including comments from some voting members who believe that the central bank is not making adequate progress toward bringing inflation down to the 2% mandate. But that shouldn’t be a surprise to the market either. There have been enough public speeches made by various members of the Fed over the past several weeks that such a hawkish tone should not be a surprise to the market.
Wheat prices surged in Europe earlier today, leading to strong double-digit gains here in the States as well. Russian weather is the focus, but concerns are growing beyond Russia now as well. Private production estimates from the Black Sea Region are now starting to come in below 85 million metric tons. We’ve talked extensively about freeze damage in Russia, with Ukraine also talking about some damage, but the real threat to the Black Sea crop is related to the current drought pattern in southern Russia and in eastern Ukraine. Commodity Weather Group narrowed its assessment of drought stress for Russia to 40% over the next 10 days, down from 50% last week, while saying that Ukraine areas under stress will likely broaden to 75% of Ukraine’s crop. June is the critical month for the crop in this region of the world, so this will continue to be a story to be watched, particularly with excessive moisture delaying planting of Russia’s spring wheat crop (nearly a third of Russia’s production) as well as delaying planting of the spring wheat crop in the Southern Canadian Prairies.
Widespread rains are expected to return to the Midwest early this week, after providing a window of opportunity for planting progress – primarily in northwestern areas – in recent days. Planting progress remains well ahead of the benchmark 2019 growing season when corn and soybeans didn’t complete planting well into June, but delays are still significant enough to raise concerns. The week #2 forecast looks to provide more opportunities this morning, as long as we can get that drier trend to move forward in the forecast – something that’s been a problem this year. USDA will updated planting progress numbers this afternoon. I don’t see panic yet, but concerns are growing. We’re going to need to see next week’s drier trend hold, or the market will likely start elevating those concerns in the days ahead. The good news is that northwestern areas of the belt with the shortest growing season should see the greatest progress in recent days.
