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Perspective: Morning Commentary for October 28

Mike Castle
Mike Castle

Market Intelligence - Fertilizer Analyst

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October 28 – Stock futures are pointing to a mostly higher open, led by the tech heavy Nasdaq as it attempts to add to impressive early week gains, with big earnings reports on deck after today’s close from both Microsoft and Google parent Alphabet, followed by Amazon tomorrow, and Apple next Monday (11/2). The VIX is starting the day slightly below yesterday’s close, hovering near 17.4 at the time of writing. The dollar is losing some steam after back-to-back days of sharp gains to start the week, trading just below the 102.34 mark after touching a fresh two-week high near 102.5 overnight. Treasury yields are off to a quietly mixed start, with 2-year yields up slightly to 4.743%, 10-year yields unchanged at 4.993%, and 30-year yields slightly lower to sit at 5.30%. The ags are mostly looking at a quietly higher open, looking to find their footing after an ugly selloff to start the week.

Crude oil prices are pushing higher this morning amid continued rumblings of renewed U.S. / Israeli military action after next week’s midterm elections, with nearby WTI up 1.6% to trade near $101.80 and nearby Brent up 1.7% to trade near $111.25 at the time of writing. The push for diplomacy has continued this week with officials from Saudi Arabia, Turkey, and Pakistan all in Tehran this week, while Qatari mediators have reportedly presented fresh proposals to bring gradual de-escalation to the conflict. However, Iranian officials have cast doubt on hopes for meaningful progress, stating Qatar had presented “unacceptable ideas and not an offer.” Meanwhile, Israel's election appears unlikely to produce an immediate shift in regional policy, as preliminary results point to political deadlock and potentially lengthy coalition negotiations. While the final government composition remains unclear, both major camps broadly support a hard security posture toward Iran and its allied militant groups, suggesting limited near-term changes to Israel's regional strategy. The election therefore does little to reduce current geopolitical risk premiums in energy markets, with investors likely to remain focused on developments involving Iran, the Houthis, Gulf energy infrastructure, and ongoing military operations rather than on Israeli domestic politics. To that end, the Houthis today called for an immediate evacuation of the Aden airport today as the fighting within Yemen continues to intensify, keeping that flashpoint squarely in focus. Attention now turns to next Tuesday’s U.S. midterm elections and whether the current threats of renewed military action in the days following come to fruition, or prove to be more positioning for ongoing negotiations.

The tech sector got a fresh boost of optimism from yesterday’s blowout earnings results from South Korea’s SK Hynix, whose operating profit rose an eye-popping 632% year-over-year, sending their own stock and the broader South Korean KOSPI index sharply higher and leading Nasdaq futures into the green to start the day. Apart from the blowout earnings figures themselves, the company noted that both their DRAM and HBM capacity is completely sold out through 2029, highlighting the red hot demand in the sector amid the ongoing AI buildout. They predicted that global memory shortages driven by AI data center expansions will persist until at least 2030, reinforcing the view that AI-related semiconductor demand remains supply constrained rather than demand constrained. Against that backdrop, today's earnings from Microsoft and Alphabet take on added importance, as investors look for confirmation that hyperscaler cloud growth and AI monetization are accelerating fast enough to justify the continued massive spending on data centers, GPUs, and memory. While SK Hynix’s results are clearly supportive of the broader AI trade and suggest demand for AI infrastructure remains robust, the key question for the market has shifted from whether companies are spending on AI to whether that spending is generating measurable revenue and profit growth, making cloud demand, AI-related revenue commentary, and 2027 capital expenditure guidance the critical metrics to watch from today’s reports.

Average 30-year mortgage rates in the U.S. fell to 7.37% in the week ending October 23, the second consecutive weekly decline after seeing an eight-week stretch of weekly increases that added nearly 75-basis points to push mortgage rates to a three-year high. This led to the first rise in mortgage applications in eight weeks, up 3.4% week-on-week, the largest weekly rise since early August. Rebounds were seen in both new purchase applications, up 3.8% week-on-week, and refinancing applications, up 2.7% week-on-week. Both remain near multi-year lows, but the housing market will happily take any reprieve it can get at this point.

U.S. M2 money supply rose 0.48% month-on-month to another fresh all-time high of $23.414T in September, marking the 17th consecutive month of new record highs, an underappreciated macro development. After serving as a significant headwind to liquidity conditions during the Fed's tightening cycle, broad money is once again expanding on a year-over-year basis, with September’s 5.71% year-over-year rise marking the fastest pace of acceleration since May 2022. A sustained recovery in broad money growth is not an immediate inflation catalyst but historically has been associated with firmer nominal demand and upward pressure on prices over time—look no further than our recent post-pandemic bout. While this reacceleration does not guarantee a return of inflation, it does suggest the powerful monetary drag that helped cool price pressures over the last few years is gradually fading. Add this into an already loaded inflation pipeline at the producer level, and the combination of rising input costs and expanding liquidity raises the risk that today's producer-price pressures ultimately find their way into broader consumer prices.

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