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Perspective: Morning Commentary for October 27

Mike Castle
Mike Castle

Market Intelligence - Fertilizer Analyst

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October 27 – The Fed’s October meeting kicks off today, though CME’s FedWatch currently shows 90%+ odds of the FOMC holding rates steady this week, with the next 25-basis point hike seen at the December meeting. With that said, the bigger intrigue will likely come from Fed Chair Kevin Warsh’s press conference tomorrow afternoon as traders parse through his comments to shape expectations for the Fed’s path forward. Meanwhile, stock futures are pointing to a positive open, looking to add to yesterday’s gains. The VIX is falling again, off roughly 3% on the day to hang near 17.8 at the time of writing. The dollar is looking to add to yesterday’s gains as well, up just over 0.1% to trade at a nearly two-week high around the 102.15 level. Treasury yields are quietly mixed to start the day, with 2-year yields slightly higher to trade at 4.714%, while long-term yields are slightly lower, with 10-year yields at 4.98% and 30-year yields at 5.292%. Crude oil prices are quietly lower, with nearby WTI down 0.4% on the day, trading near $100.80 and nearby Brent down 0.6%, trading near $110.10. The ags are mixed to start the day, with soybeans looking to rebound after yesterday’s knee-jerk selloff in response to the unexpected re-election of Brazilian President Lula and subsequent selloff in the Brazilian Real, which is also looking to rebound this morning.

Microsoft announced a broad voluntary buyout program that makes roughly 60,000 employees, or about 27% of its global workforce, eligible for exit packages as the company looks to balance a surge in AI-related spending with cost reductions elsewhere. The move comes as Microsoft ramps up investments in data centers and AI infrastructure, with management forecasting approximately $175B in capital expenditures this year, underscoring how aggressively the company is reallocating resources toward AI. While the program is voluntary rather than a formal layoff, it represents the largest workforce reduction effort tied to the AI investment cycle to date and highlights a growing trend among technology companies of prioritizing AI-related spending while seeking cost cuts elsewhere in their businesses. It remains to be seen how many employees will take the buyout, so we don’t yet know the scale of employment reductions, but it will be worth following this story not just for the employment impact at Microsoft, but whether other peers in the tech sector will look to follow suit with similar measures.

Headline durable goods orders jumped 1.8% month-on-month in September, the sharpest monthly rise since April but falling roughly in line with the average analyst estimate of a 1.7% rise. That headline strength was driven primarily by a surge in transportation equipment orders, rising 4.6% month-on-month, largely due to a massive 28.4% surge in civilian aircraft orders. There was strength to be found elsewhere, however, with orders for machinery rising 1.2% month-on-month and orders for computers and electronic products rising 0.8% month-on-month, both representing solid acceleration versus August. However, stripping the data back to orders for non-defense capital goods excluding aircraft, a closely watched proxy for broader business investment plans, September saw only a 0.5% rise, falling below the average analyst estimate of 0.7% and marking the weakest print since April.

U.S. corn and soybean harvest both saw a nice week of catch-up on yesterday afternoon’s Crop Progress report, with the former advancing 16% week-on-week to reach 60% complete, 1% ahead of the average analyst estimate, and the latter advancing 15% week-on-week to reach 79% complete, matching estimates. U.S. soybean harvest has seen considerable progress in recent weeks, now pulling ahead to sit at only their slowest pace since 2022. The most pronounced delays remain in Nebraska, trailing their previous five-year average pace by 7%, followed by Iowa and Kansas, each trailing their respective five-year average paces by 6%. There’s been a clearer focus on getting soybeans out of the field at the expense of corn, as U.S. corn harvest remains off to its slowest start since the waterlogged 2019 campaign. This is most pronounced in Iowa, where corn harvest now lags the previous five-year average pace by 20%, followed by South Dakota (-18%), Michigan (-15%), Ohio (-11%), and Nebraska (-9%). A wet pattern is settling back into the central U.S. this week, with wide swaths of the Midwest catching rains yesterday and lingering showers still moving through today. Forecasts are calling for an active but spotty pattern over the next two weeks, which may drag out the tail-end of fall harvest, more notably on the corn side given its longer distance to the finish line. If these forecasts come to fruition, it will be interesting to keep an eye on the quality of that late harvested corn in some of these wettest areas.

U.S. winter wheat planting is officially no longer off to its slowest start on record, advancing 13% week-on-week to reach 76% complete, now matching 2010’s pace, as shown below. It was a very impressive week of progress in soft red winter wheat country in the Eastern Midwest, with Ohio seeing the biggest weekly advancement at 30%, followed by Michigan (+24%), with Indiana and Kansas tied for third (+20%). The most notable delay remains in Oklahoma, sitting at only 51% complete as they lag their previous five-year average pace by 18%. They’ve caught more rain already early this week, but farmers remain incentivized to play catch-up as quickly as Mother Nature allows given the combination of four-year highs in fall crop insurance prices and now ample soil moisture reserves. It’s still too early for serious concern regarding an inability to get the crop in the ground, however, with crop insurance final planting dates not coming until mid-November for western portions of the state and November 30for the remainder. Still, we’ll need to keep an eye on forecasts in the weeks ahead.

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Perspective: Morning Commentary for October 27

October 27 – The Fed’s October meeting kicks off today, though CME’s FedWatch currently shows 90%+ odds of the FOMC holding rates steady this week, with the next 25-basis point hike seen at the December meeting. With that said, the bigger intrigue will likely come from Fed Chair Kevin Warsh’s press conference tomorrow afternoon as traders parse through his comments to shape expectations for the Fed’s path forward. Meanwhile, stock futures are pointing to a positive open, looking to add to yesterday’s gains. The VIX is falling again, off roughly 3% on the day to hang near 17.8 at the time of writing. The dollar is looking to add to yesterday’s gains as well, up just over 0.1% to trade at a nearly two-week high around the 102.15 level. Treasury yields are quietly mixed to start the day, with 2-year yields slightly higher to trade at 4.714%, while long-term yields are slightly lower, with 10-year yields at 4.98% and 30-year yields at 5.292%. Crude oil prices are quietly lower, with nearby WTI down 0.4% on the day, trading near $100.80 and nearby Brent down 0.6%, trading near $110.10. The ags are mixed to start the day, with soybeans looking to rebound after yesterday’s knee-jerk selloff in response to the unexpected re-election of Brazilian President Lula and subsequent selloff in the Brazilian Real, which is also looking to rebound this morning.

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