Perspective: Morning Commentary for April 15

April 15 – It’s Tax Day in the States, but Wall Street traders are focused on positive bank earnings reports and optimism that the Middle East war will remain contained, despite Iran’s attempts to hit Israel over the weekend. Goldman Sachs reported its best earnings since the third quarter of 2021, while traders also focus on hopes that Israel will show restraint toward additional responses to Iran’s weekend missile attack. The VIX is trading near 16 this morning, while the dollar index is trading near 105.9. Yields on 10-year Treasuries are trading near 4.61%, while yields on 2-year Treasuries are trading near 4.97%. Yields on 10-year Treasuries are posting fresh five-month highs this morning, while the dollar index did so earlier this morning. Crude oil prices pulled back this morning on the optimism that the Middle East war will remain contained, but it too is trading just below five-month highs. The grain and oilseed markets traded quietly lower overnight.

Retail sales grew 0.7% month-on-month in March, beating analyst expectations of 0.4% growth. The larger-than-expected month-on-month gains came despite a big upward revision of the February numbers to show 0.9% growth during the month, up from the 0.6% grow originally reported. Retail sales were up 4.0% year-on-year in March, with first quarter sales up 2.1% year-on-year. Furthermore, retail sales minus vehicles rose 1.1% month-on-month in March, more than doubling analyst expectations of 0.5% growth. The February data was also revised to show 0.6% growth month-on-month, doubling the 0.3% growth originally reported. Retail sales minus vehicles and gas rose 1.0% month-on-month, beating analyst expectations of 0.3%, and above an upwardly revised 0.5% for February. These are strong numbers, meaning that the Federal Reserve has little incentive to cut rates when the economy is continuing to show this resiliency. In fact, cutting rates now could encourage even more reinflation pressure.

Tensions remain high in the Middle East today, as the world waits to see whether open warfare will erupt between Israel and Iran, dragging the United States into the conflict in the process. Israel says that “the campaign is not over yet,” but Europe and the United States are urging restraint, which is just what Iran wants as well, following its blistering attack on Israel over the weekend that largely came up empty. Israel’s war cabinet is set to convene in the hours ahead to make a decision on its response to Iran’s weekend attack, which included more than 300 missiles and drones targeting Israel. However, the only reported serious injury from the attack was a seven year old hurt by shrapnel due to the effectiveness of Israel’s “Iron Dome” defense system that reportedly shot down 99% of the missiles and drones entering Israel’s airspace.

There are plenty of geopolitical complications involved in how this unfolds, but the commodity markets are most impacted if the conflict transforms into a regional conflict that results in damage to infrastructure for the production and/or export of crude oil and its products. Let’s not forget that the war in the Black Sea continues as well, with Ukraine striking refineries deep inside of Russia in recent weeks, trying to reduce the supply of fuel available for Russia’s war efforts. Both countries have thus far maintained restraint in not attacking oil export capacity in the region, but what happens if a ship sinks in the region. That could make shippers reluctant to move either energy or food cargoes out of this major production hub of the world. These are the geopolitical risks that haunt traders in this world of instability that we currently find ourselves.

Deflation concerns and last week’s weak trade data continue to cloud China’s outlook, although its stock market ended higher today as China took more steps to restrict selling in the market. March credit demand in China, from both businesses and from residential customers, was weaker than expected. Bank loans in these sectors rose by 3.09 trillion yuan in March, but that was below last year’s 3.89 trillion yuan, and it fell below market expectations of 3.56 trillion yuan. The primary problem continues to be stagnant demand for property. Household medium- to long-term loans are down 30% year-on-year. This suggests that China’s various steps taken to stimulate its economy have done little to improve consumer confidence in the economy to this point.

The grain and oilseed sector lacks a story currently. We should see good early corn planting progress in this afternoon’s USDA weekly crop progress report, while hot winds likely pulled hard red winter wheat condition ratings a bit lower. Nonetheless, cheap wheat continues to flow out of the Black Sea, and the world is adequately supplied with corn and soybeans currently as well.