By: Mike Castle, Market Intelligence - Fertilizer Analyst
September 16 – It’s Fed Day, with the FOMC set to announce their rate decision at 1:00 PM Central Time and new Chair Kevin Warsh to follow with his highly anticipated press conference. The market continues to price in expectations of a 25-basis point hike, with CME’s FedWatch showing the probability at 92.7% at the time of writing. If the expected result plays out, this would represent the Fed’s first hike since July 2023, but the real question for the market is how many more hikes will be expected to follow. Kevin Warsh has reiterated time and again his intention of providing less forward guidance, but traders will ultimately be monitoring his comments closely to help shape their expectations for what lies ahead.
Stock futures are pointing to a modestly higher open as they attempt to claw back some of yesterday's losses, while the VIX is cooling to hang near the 16.8 level. The dollar is continuing to push higher this week as the market prices in expectations of a rate hike being announced later today, touching a fresh two-week high this morning at 99.75. Treasury yields are off slightly to start the day, with 2-year yields trading just above 4.64%, 10-year yields at 4.98%, and 30-year yields near 5.355%. Crude oil is off to a slightly weaker start, with nearby WTI down 1.5% to hang near $103.90 and nearby Brent down 1.1% to hang near $107.60. The ags are quietly mixed, with the soy complex leading the way higher to start the day.
Average 30-year mortgage rates surged to a 16-month high of 6.97% in the week ending September 11, a sharp rise from the 6.85% seen the week prior as they continue to follow increasing treasury yields higher. In response, overall U.S. mortgage applications fell another 4.1% week-on-week, their sharpest weekly decline in two months. This was driven primarily by an 8.8% decline in refinancing applications, though applications for new purchases were down a much slighter 0.8% on the week. Combined, overall mortgage application volume fell to a 16-month low last week, highlighting the struggles of the housing sector with little relief in rates seen ahead. We’ll get a fresh look at the health of the U.S. housing market in the near future, with the National Association of Homebuilders (NAHB) September Housing Market Index due out shortly and August housing starts and building permits data due out tomorrow morning.
U.S. retail sales surged 1.2% month-on-month in August, blowing past expectations of a 0.8% rise and marking a notable rebound from the -0.5% seen in July, which was also revised slightly higher from the -0.6% previously reported. This is the largest monthly increase in retail sales since March. August retail sales were boosted by higher gasoline prices, with spending at gas stations seeing the largest increase at 3.1% month-on-month, but the upside surprise was much broader than energy. Strong online spending, restaurants, electronics and other discretionary categories drove a sizable 1.2% increase in sales excluding both autos and gasoline, suggesting resilience among U.S. consumers. One caveat to add, however, is that these are not inflation-adjusted figures, meaning part of the strength reflects rising prices rather than stronger underlying consumer demand. Even so, today’s data remains largely supportive, particularly given the rebound from July’s decline.
Saudi Arabia claims to have intercepted a Houthi drone in restricted airspace over Mecca yesterday, stating the targeting of the holy city had crossed a “red line,” likely signaling further escalation between the two sides. To that end, the Saudis and their allied Yemeni government forces are ramping up air strikes on Houthi positions across Yemen significantly, though it appears they have done little to stop the rapid gains on the ground along the Red Sea coast thus far. Saudi’s East-West pipeline remains shut down, as does the now critical Red Sea port of Yanbu, with conflicting reports regarding an expected timeline for repairs, with most estimates measured in weeks rather than days. This is driving further incentive to find alternatives, with Gulf producers appearing to be increasingly using the southern transit corridor along the Omani side of the Strait of Hormuz, allowing materially more oil to escape the Gulf than headline AIS data initially suggested. It is not a true bypass of Hormuz, however, and Saudi Arabia remains particularly exposed following the loss of its East–West Pipeline route to Yanbu.
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