Perspective: Morning Commentary for September 27

September 27 – A momentary celebration followed the release of this morning’s inflation data, but the data largely matched expectations for a sustained decline in headline inflation in August. That provided ongoing support for stocks this morning, with gains limited by escalating geopolitical tensions going into the weekend, combined with expectations for a longshoreman’s strike on Tuesday of next week. The VIX is trading near 15 this morning, reflecting relative calm on Wall Street, while the dollar index trades to a fresh 14-month low near 100.2, where it is testing an area of significant chart support near 100. Yields on 10-year Treasuries are trading near 3.76% following the release of this morning’s inflation data, while yields on 2-year Treasuries are trading near 3.60%. Crude oil prices are modestly weaker once again this morning on increased Libyan output and soft demand, despite this week’s flood of Chinese stimulus ahead of its National Holiday week, and ahead of a weekend that holds its share of geopolitical risks in the Middle East. Crude oil prices received a brief bump from this morning’s inflation data, but then they resumed their slide to lower levels. Grain and oilseed prices were quietly mixed overnight, finding chart support in the recent short covering rally, as well as dryness in Brazil and the Black Sea and concerns about storm damage from the remnants of Hurricane Helene, but feeling the pressure of what is expected to be an active harvest weekend in central and western areas of the Midwest.

Personal income rose 0.2% month-on-month in August, down from 0.3% the previous month, and below analyst expectations of 0.4%. Personal consumption expenditures also rose by 0.2% month-on-month in August, down from 0.5% the previous month, and down from analyst expectations of 0.3%. The headline PCE price index rose just 0.1% month-on-month in August, down from 0.2% the previous month, but matching analyst expectations. The headline PCE price index rose 2.2% year-on-year in August, down from 2.5% the previous month, down from analyst expectations of 2.3%, and ever so close to the Federal Reserve’s 2% mandate. The core PCE price index that excludes the more volatile food and energy sectors also rose just 0.1% month-on-month in August, down from 0.2% the previous month, and below analyst expectations of 0.2%. The core PCE price index rose 2.7% year-on-year in August, which is up from 2.6% the previous month, while matching analyst expectations. There are still lingering inflationary factors in the service sector that have not yet been addressed. Overall, this data is considered to be confirmation of the Federal Reserve’s current path toward cutting rates. That was expected, particularly with commodity prices continuing to decline in August. Rather, the debate continues over the unintended consequences of cutting rates too quickly amid ongoing fiscal stimulus.

A longshoreman’s strike is expected impact all ports from Maine to Texas starting on Tuesday of next week. Union workers at East and Gulf Coast ports currently earn an average of $39 per hour after achieving six years of tenure, which is significantly less than their peers on the West Coast who earn $54.85 per hour, and that will be increasing to $60.85 per hour by 2027, excluding overtime and benefits. The strike could cost the U.S. economy as much as $5 billion per day, based on some estimates. It will primarily impact container freight, while most bulk commodity trade should continue to flow. As such, we should not see any notable impacts for bulk grain and oilseed exports. However, container shipments of corn, soybeans, wheat, soymeal, DDGS, meat, etc. will be hit. That’s a significant impact for some specialty markets in the grain and oilseed space, but it is not a market mover for the grain and oilseed space, where most shipments are bulk. However, it will have a more significant impact on meat shipments. The majority of our meat shipments currently move through the West Coast and should not be impacted as long as longshoreman on the West Coast don’t join in on the action. However, pork and poultry shipments could be significantly impacted by a prolonged strike, especially to customers in Caribbean and Latin American markets. We also bring in a sizeable amount of beef imports onto the East Coast that could be negatively impacted.

Hurricane Helene hit the Florida Panhandle as a Category 4 storm last night. It was one of the largest, strongest, fastest moving storms to hit that part of the country on record. The region will be cleaning up and rebuilding for many months to come. But from a commodity standpoint, Helene wasn’t done, and still isn’t. The remnants of Helene continue to bring strong winds, heavy rains and widespread flooding to a broad portion of the Southeast U.S. The remnants are being pulled into a broader low pressure that had previously dropped down into the Midwest, spreading a broad rain shield as far west as Missouri. However, Helene’s high winds continue to be a problem as well, with high wind warnings out for much of the eastern Midwest into tonight, where we could see 70 mph gusts into central Indiana. Cotton in the open boll phase continues to be vulnerable in the southeast into the Mid-Atlantic, as are corn and soybeans as far north as central Indiana and Ohio. Heavy rains combined with high winds can break mature plant stems, causing lodging of insight into the scope of damage to crops in affected areas.