October 17 – Stock futures dipped lower overnight as tensions continue to rise in the Middle East, while this morning’s retail sales data did little to change market sentiment. The VIX is trading near 18 this morning, which is a bit elevated following the release of the retail sales data. The dollar index also rallied on the data release, trading near 106.4. Yields on 10-year Treasuries are trading at 11-day highs near 4.82%, while yields on 2-year Treasuries are trading near 5.17%. Crude oil prices are mixed in early trade, as are grain and oilseed prices.
U.S. President Joe Biden is expected to travel to Israel on Wednesday to show his support for the nation. The travel plans were announced after Israel agreed to allow humanitarian aid into the Gaza Strip. Israel continues to strike Gaza with targeted missiles to soften things up ahead of an anticipated ground assault. Iran’s Supreme Leader accused Israel of genocide, calling it to immediately halt the attack on Gaza, while warning it against a ground assault. That raised fears that the conflict could spread regionally in the days ahead that could disrupt regional supply chains and economic growth, as well as disrupt energy output. The markets remain relatively stable at this point, although we’ve seen increased volatility in the VIX as traders assess risk options. This leaves the markets quite vulnerable to headline risk going forward.
Retail sales rose 0.7% month-on-month in September, which was more than double the 0.3% expected by analysts. Furthermore, the August gains were revised to 0.8% growth, up from the 0.6% originally reported. Retail sales minus vehicles rose 0.6%, which was more than triple the 0.2% growth rate expected by analysts. The August data was revised to 0.9% growth, up from the 0.6% originally reported. Retail sales minus both vehicles and gas rose 0.6% month-on-month in September, up from the 0.1% expected by analysts, with the August number revised to 0.3%, up from the 0.2% growth originally reported. This suggests that retail sales rose significantly in September beyond just the increase in gas prices or a change in vehicle sales, indicating a strong resilience in the economy during the month consistent with the strong jobs report released on October 6th. Traders interpreted that as further evidence that the Fed could continue to raise interest rates as it tries to get inflation down to the 2% mandate. Fed fund futures traded better than 45% odds of another rate hike by January this morning, up from 37% yesterday. Perhaps more significantly, odds of notable rate cuts in 2024 continue to trend lower as the market seems to finally be listening to the “higher for longer” rhetoric that’s been coming from the Federal Reserve over the past year.
There were up to 90 ships in the Ukrainian port of Izmail on the Danube River yesterday, according to market sources, nearly tripling over the past week, with another dozen vessels at the port of Reni as shippers become increasingly comfortable with using the Ukrainian corridor to move in and out of its ports. Another 14 ships are believed to be in or around port facilities at Odessa. The first big Panamax is believed to be arriving to load in Ukraine in November, although authorities remain tight lipped about schedules for security reasons. Shippers are increasingly more comfortable traveling to and from Ukraine ports. For its part, Russia continues to attack the port facilities while not specifically targeting ships. Authorities report that the attacks have already reduced port capacity by roughly 40%, with the attacks ongoing. Meanwhile, Ukraine continues to actively negotiate solutions for increasing movement of its grain over land to the west, although that is more costly. Ukraine reported this morning that the United States offered Ukraine $700 million to “modernize” Ukraine export logistics and transport infrastructure to help it compete with U.S. farmers on the world market.
China bought another 18 cargoes of soybeans last week, which was the fifth consecutive week for purchases to lag the typical 20 – 30 cargoes per week. Buyers focused a bit more on U.S. purchases over the past week, as a strengthening of Brazil’s currency combined with inverses in the price structure to make Brazilian supplies less competitive. Buyers hope that a favorable start to Brazil’s growing season will reduce the inverse in the price structure to make Brazilian beans more competitive again, which would lead them to increase purchases for December and January shipment. They’ve currently bought an estimated 6.15 million metric tons for November shipment, with 44% of those purchases originating in Brazil. However, China has very little on the books thus far for shipment in December and January amid expectations that it needs to buy 9 – 10 mmt for those months. The next week looks dry for Center-West Brazil, although planting thus far is just modestly below the five-year average. More rains are currently expected to aid crops by the middle of next week.
