October 30 – It’s potentially a big headline week on Wall Street. The war in the Middle East continues to intensify, although it thus far remains relatively contained to Gaza, while the war in Ukraine lingers on. The United Auto Workers reached a tentative agreement with Ford last week, followed by doing the same with Stellantis, allowing it to escalate things with General Motors. It’s Fed week on Wall Street, with the Federal Reserve meeting to discuss potential changes to its monetary policy on Tuesday and Wednesday. It’s also jobs week, with significant employment data coming out on Wednesday, Thursday, and Friday of this week. Wall Street has a cautiously optimistic attitude about this week’s Fed meeting, while energy traders are encouraged to see the Middle East war remain relatively contained, despite its escalation over the weekend as troops moved into portions of Gaza. Stock futures are higher in early trade, following last week’s sell-off, while the VIX is trading near 21 this morning. The dollar index is trading near 106.3. Yields on 10-year Treasuries are trading near 4.90%, while yields on 2-year Treasuries are trading near 5.07%. Crude oil prices are trading nearly 2% lower this morning, while the grain and oilseed sector is mixed to mostly lower as well.
Fed fund futures give zero chances of a hike in the Federal Reserve’s benchmark interest rates when they meet on Tuesday and Wednesday of this week. Although the odds of a rate hike in December remain at 24%, with the odds of a hike in January at nearly one in three. But the market has rarely been right about Fed actions in recent years – constantly expecting a rate hike when rates were low, while expecting rate cuts when they were high. The fact is that there is little correlation between market expectations and what the Fed actually does. Most rate cuts come when the market does not expect them. As such, history – combined with recent Fed statements – would suggest that we’ll see the Fed remain hawkish until the market gives up on its hopes for rate cuts, and then that’s when the cuts will come. Until then, the risk of higher rates remain, especially for the long end of the yield curve.
Israel has ground forces fighting Hamas directly in Gaza following weekend incursions into the region, while Hamas continues to fire rockets into Israel. The fighting is reported to be “fierce” this morning, with Israel stating that it has struck more than 600 militant targets within the Gaza Strip over the past few days. Israeli forces have periodically engaged with Hezbollah forces within Lebanon, while U.S. forces in the Middle East have occasionally faced attack as well, but the conflict has largely remained contained within the Gaza Strip, despite threats from Iran to draw the United States into the war if Israel invaded Gaza. Crude oil prices eased back this morning as the war remained contained, but Wall Street remains on edge, knowing that the next headline could change the dynamics.
China’s foreign Minister Wang Yi made it clear on Sunday that the United States has some work to do before President Xi Jinping will agree to meet with President Joe Biden in San Francisco during the Asia-Pacific Economic Cooperation summit next month. The foreign minister stated that the “road to the San Francisco summit will not be a smooth one.” Wang met with President Biden and his top aides in Washington, D.C. over the weekend to work toward a possible bilateral meeting during the APEC meeting in two weeks. Saturday’s meeting reportedly included discussions on China and U.S. military activity, finance, science and technology, as well as the investment environment within China, in addition to conflicts in the Ukraine and in the Middle East.
Soybean planting reached 43% complete as of Friday, according to StoneX Brazil in its latest survey, down 7 points from the previous year and roughly 10 points behind typical levels for late October. Planting progress is more advanced in Mato Grosso at 74%, but that is down 9 points from the previous year’s pace. The planting delays are largely due to soils being too dry to support germination and emergence. Scattered showers continue in some areas, allowing the spotty planting progress, amid isolated reports of replanting needed due to dry soils. Forecast models continue to call for widespread rains in Center-West Brazil, but they’re always about a week out in the forecast. Concerns are starting to rise in Brazil, with low water levels on the Amazon River system also re-routing soybeans to ports to the southeast of Mato Grosso, raising the cost of shipment. That’s starting to support U.S. soybean sales, providing support for the oilseed’s futures trade. Additional support comes from strong soymeal demand, although we’re reaching levels where prices start to make dried distillers grains and solubles more attractive for domestic livestock producers. Meanwhile, Kansas City wheat made new two-year lows overnight as Black Sea wheat continues to undercut world prices, with corn caught between wheat and soybeans.
