Perspective: Morning Commentary for September 20

By: Arlan Suderman, Chief Commodities Economist

Mon, 20 Sep 2021, 13:05

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

September 20 – It’s “risk-off” in the broader global markets today, as traders focus on mounting risks from China, Washington, D.C., and from the Federal Reserve. Global traders liquidated ownership of a broad spectrum of assets overnight while assessing these approaching risks. They include China’s Evergrande Group, Congress’ failure thus far to fund the government or to raise the debt ceiling, and this week’s meeting of the Federal Open Market Committee that may finally provide a timetable for tapering. This comes on top of last week’s rising concerns about rising taxes. The VIX surged about 26 early today to trade at fresh four-month highs. The dollar index traded to fresh four-week highs above 93.4. Yields on 10-year Treasuries traded near 1.31% this morning. The broader commodity sector came under pressure as well as traders took risk off the table, with crude oil prices down more than 2%, while the Ags were also down generally 1 – 2%.

The Evergrande Group is China’s second-largest property developer by sales, which the 2021 Fortune 500 List puts at 122^nd in the world by revenue. Its shares plummeted to 11-year lows today as it scrambles to raise funds to pay $305 billion in liabilities it owes to avoid default. It has a $83.5 million interest payment due on September 23^rd on March 2022 bonds, with another $47.5 million interest payment due March 2024 bonds on September 29^th. Reuters reports that both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates. China has thus far stated that it will not bail out Evergrande, creating panic that the contagion will spread to other global banks, etc. We may sometimes argue that China is misguided in its policy, but it is very shrewd, and it generally has a long-game strategy. It generally is not afraid of short-term pain that will provide it greater control of assets in the long-term, and it obviously does not see a threat to its national security by moving down the current path. Yet, we do not yet know the potential connections to global banks / corporate holdings that might be impacted, creating some of the panic in the world markets.

Congress must pass a measure to fund the government within the next 10 days. We’re also expected to hit the debt ceiling sometime in October. The United States is in danger of default if Congress fails to deal with these issues. In reality, there are things that the budget office can do to prevent defaulting on debt, but that’s never the way this debate is framed, regardless of the party in power. Look for Congress to push a package through at the last minute to raise the debt ceiling that will also be packed with other unrelated policy and spending obligations so that legislators can be told that they voted for the United States defaulting on its debt if they fail to vote for the package. It’s a strategy used in Washington for years, that has soured most of us on the legislative process. Yet, in the end, the government will be funded, and debt ceiling will be raised, and we will move on to the next issue.

The Federal Open Market Committee meets Tuesday and Wednesday of this week to discuss potential changes to its monetary policy, with a revised statement release scheduled for 2 p.m. EDT Wednesday. Policymakers are not expected to change monetary policy at this meeting, but traders do expect the Fed to release a more-defined roadmap for tapering and interest rate hikes. Today’s sell-off in the broader markets, particularly if it continues over the next couple of days, puts an interesting light on the Fed meetings. The Fed always says that it operates independent of the markets, but history tells us otherwise. Individual policymakers have suggested that we should get a tapering schedule coming out of this week’s meeting, while Fed Chair Jerome Powell has been reluctant to do so. The market could interpret it as wise if the Fed holds off due to the current sell-off, as that would mean the money spigot would stay open, or it could interpret that as confirmation that the Fed is worried about the economy. Either way, it means that this could be a volatile week for money flow in the markets, including the commodities.

Traders liquidated ownership of the commodities as they took risk off the table overnight. The Algo’s kicked in, driving prices lower as chart signals turned and momentum grew. Today’s close should tell us a great deal about the conviction, or lack thereof, in the current sell-off. A frontal system moves across the Corn Belt over the next two days, providing the Midwest’s best chance for storms that it will see over the next two weeks. Harvest progress should rapidly gain momentum behind the frontal system, with traders closely monitoring yield results. Thus far, those yield results, albeit anecdotal, have fit my expectations for the most part. Some yields have been very good, but many have fallen short of high expectations east of the Mississippi River. Further south, Brazilian farmers are still waiting for the rainy season to start so that they can plant soybeans.

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Perspective: Morning Commentary for August 7

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Mike CastleThu, 06 Aug 2026, 13:24

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Matt ZellerWed, 05 Aug 2026, 12:39

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