October 18 – Stock futures turned lower overnight, as traders grew wary of mounting tensions in the Middle East, fearing that the conflict in the Gaza Strip might grow into a more regional conflict. Traders are also looking forward to this afternoon’s scheduled release of the Federal Reserve’s Beige Book, which provides the central bank’s analysis of the economy ahead of its upcoming policy meeting in a couple of weeks. The VIX is trading near 18 this morning, while the dollar index is trading near 106.3. Yields on 10-year Treasuries are trading near 4.87%, just below 16-year highs, while yields on 2-year Treasuries are trading near 5.21%, which is just below yesterday’s 17-year highs. Crude oil prices are trading more than 1% higher, although that’s well off their session highs near $90 per barrel. Grain and oilseed prices are mostly higher in early trade.
President Biden is in Israel today to show U.S. support for the nation as fighting continues in the Gaza Strip. The trip was marred by a massive explosion at a Gaza hospital that claimed the lives of hundreds of Palestinians. Israel received blame for the blast, while evidence has since emerged that it was the product of a failed rocket launch by Hamas, reflecting the fog of war where bad things happen and both sides point their fingers at the other. The bottom line is that Jordan cancelled a planned summit with Biden that would have included leaders of Jordan, Egypt, and the Palestinian Authority. The bottom line is that both sides will believe what they want to believe, reinforcing their anger and hatred toward the other side, risking further escalation of the war. Iran warns that it “cannot simply remain an observer,” while also stating that “If the scope of the war expands, significant damages will also be inflicted upon America.” Crude oil prices surged overnight on the escalation, although they have pulled back from those highs.
Housing starts rose to an annualized rate of 1.358 million in September, up from 1.269 million in August, but below analyst expectations that they would rise to 1.394 million units. Permits issued to start new housing projects fell to an annualized rate of 1.473 million, down from 1.541 million the previous month, but above analyst expectations of 1.450 million permits. The supply of houses remains tight, although buyers remain wary of today’s high rates and economic uncertainty. Last week’s inflation data showed that shelter costs rose by 0.6% month-on-month, reflecting ongoing strong demand in this sector that continues to support core inflation.
Third quarter GDP grew 4.9% year-on-year in China, exceeding market expectations of 4% to 4.4%. As such, fourth quarter growth of at least 4.4% would be expected to be enough to support overall 5% growth for the year. Retail sales rose 5.5% in September, up from 4.6% growth in August, with strong gains in catering and goods. However, the property sector continues to hurt, with sold properties down 4.6% year-to-date, while the value of property sales were down 7.5%. Unsold new houses were up 19.7% year-on-year, despite numerous policies implemented to support the sector. The bottom line is that the Chinese consumer lacks confidence in the economy to make major purchases – property – but instead they’re spending that money on near-term desires. The property sector makes up more than 20% of GDP, with the major property companies facing possible default in the month’s ahead. Local governments also have high debt levels, but the central government is dealing with that by raising their allowed debt ceiling.
Five more vessels passed through the Ukrainian corridor yesterday, with three of those vessels carrying agricultural products out of Ukraine, while two more entered ports for loading. The corridor was set up in early September to allow ships to move along the Ukrainian coastline to Romanian waters before moving out into the Black Sea. Ukraine reports that 34 ships have arrived at the ports of Odesa through the corridor since September 6, with 20 of them carrying agricultural products from Ukraine during the period. Some of those ships are exiting the port area for the first time since the war started. Shippers are increasingly gaining the confidence needed to move through the corridor. Russia continues to allow these ships to move through the corridor, focusing on attacks on the ports themselves. Ukraine indicates that these attacks have reduced export capacity by 40%, but that still leaves 60% capacity to be utilized.
China is rapidly moving toward the use of genetically modified crops in its efforts to become self-sufficient in food production. GMO crops had been heavily restricted until recently, but the Chinese government had a change of heart over the past couple of years as tensions with the West escalated, raising its food security insecurities. As such, China’s Ministry of Agriculture approved 39 GMO corn and 14 GMO soybean varieties on Tuesday of this week as it races to get GMO technology into the field. It believes that it can increase corn yields by 6 to 12% by adopting GMO technology, although the potential is likely much higher than that. It’s national average corn trend yield is much closer to 100 bushels per acre than the U.S. trend near 180 bpa.
