Fertilizer prices falling | Europe loading up on Brazilian ethanol | Mortgage rates near 7%
In Today’s Digital Newspaper |
An abbreviated report today as I am set to speak to a credit group in Austin, Texas.
Equities: Global stock markets were mixed to lower overnight. U.S. stock indexes are pointed to weaker openings. In Asia, Japan -0.4%. Hong Kong -0.4%. China +0.1%. India +0.2%. In Europe, at midday, London -0.8%. Paris -1.5%. Frankfurt -1.4%.
The U.S. 10-year note yield is presently fetching 4.278%, which is the highest level since 2008. Yields for the 2-year and the 30-year also hit levels not seen in more than a decade.
Key outside markets today see the U.S. dollar index solidly higher. Nymex crude oil prices are slightly lower and trading around $84.25 a barrel.
U.K. Prime Minister Liz Truss resigned after just 45 days in office, making her the shortest-serving P.M. in British history. She’s the third Conservative Party leader pushed out in as many years; a series of scandals sank her predecessor, Boris Johnson. The Conservatives are now racing to name a new prime minister; they are expected to confirm a new leader by Oct. 28. The front-runner is former Chancellor of the Exchequer Rishi Sunak, followed by cabinet minister Penny Mordaunt. Former PM Boris Johnson is also expected to declare a run. Potential candidates need the backing of 100 Tory MPs out of the 357. Meaning a maximum of three will be able to run.
“The fundamental problem that the U.K. economy has is that the price of energy has gone up by a lot,” said Dan Davies, a managing director at Frontline Analysts. “That’s the fundamental problem; everything else in the economy is just basically how we’re going to spread that problem around.”
The dollar extended gains Friday on expectations the Federal Reserve will press ahead with its program of bumper interest rate hikes for the rest of the year.
More Fed hawks on rates. Governor Lisa Cook warned that inflation will “likely will require ongoing rate hikes and then keeping policy restrictive for some time,” adding that risks on prices are skewed to the upside. Patrick Harker said officials are likely to take its benchmark “well above” 4% this year and hold them. “We are going to keep raising rates for a while.”
China’s yuan near Great Recession lows. China’s yuan continued to weaken against the U.S. dollar, approaching lows hit during the global financial crisis of 2008. The yuan hit an intraday low of 7.2479, not much above the 14-year low of 7.2521 hit in late September. Chinese authorities continued to set firmer-than-expected yuan guidance in a bid to keep the currency stable amid the ongoing Communist Party Congress. The stronger daily guidance, which allows the onshore yuan to trade in a narrow range of 2% on either side of the midpoint, has effectively capped the downside limit for the yuan.
China eases A-share financing rules for some real estate firms. Chinese authorities will ease share financing rules for certain real estate-related firms, fueling hopes of more measures to aid the beleaguered real estate sector. The China Securities Regulatory Commission (CSRC) will allow certain companies with small property interests to raise money by selling A-shares, but the proceeds cannot be invested in the real estate business, China Securities Journal reported. For eligible companies, real estate must not be their core business, and should not contribute more than 10% of their profit, according to the report. China has barred its property firms or property-related firms from financing via the domestic A-share market since end-2018, including both IPOs and additional or follow-up share sales.
Murky fate for Ukraine’s Black Sea grain export deal. The current agreement expires in about a month and officials are trying to agree n new terms and conditions. Ukraine is seeking to extend the deal by more than a year and include Mykolayiv as a fourth exporting port, while Russia wants to see a pipeline that takes its ammonia to Odesa for shipment reopened, according to a United Nations official. A U.N. spokesman this week said there are “active and intensive” discussions, without offering further detail.
Turkey’s president sees no obstacles to extending grain export deal. Turkish President Tayyip Erdogan said he sees no obstacles to extending the deal allowing Ukrainian Black Sea grain exports, after discussions with his Russian and Ukrainian counterparts this week. “There is no obstacle to extending the export deal. I saw this in the talks I held with (Ukrainian President Volodymyr) Zelenskyy last night and also in the talks I held with (Russian President Vladimir) Putin,” NTV reported. This is a more upbeat message than that from Russian officials this week. We expect the situation to continue to ebb and flow right up until (and maybe beyond) the Nov. 19 deadline on the current grain export deal.
Fertilizer prices are falling as farmers balking at the high costs of nutrients hold off on purchases, driving down demand and causing gluts that are upending the market for crop inputs, Bloomberg reports (link). Prices soared to a record earlier this year after sanctions against Belarus, a major producer, and Russia’s invasion of Ukraine. That prompted global fertilizer firms to boost purchases and transport massive amounts of product to avoid supply chain issues and trade restrictions in export markets such as Russia.
Europe is loading up on cheaper Brazilian ethanol, tripling imports to cope with the energy crisis triggered by the war in Ukraine.
Price pressure overnight. Corn, soybean and wheat futures retreated from Thursday’s gains overnight amid renewed hopes for a Ukrainian grain export extension and pressure from financial and currency markets. As of 7:30 a.m. ET, corn futures were trading 3 to 4 cents lower, soybeans were 8 to 9 cents lower, winter wheat futures were 9 to 10 cents lower and spring wheat was around a nickel lower. Front-month crude oil futures were modestly firmer, while the U.S. dollar index was around 550 points higher.
Food inflation to linger. Nestle’s CEO said inflation will remain an issue in 2023 even after the world’s largest food maker pushes through the biggest price increases in decades this year.
Ukrainian President Volodymyr Zelenskyy told European leaders yesterday that Russian forces have mined a dam upstream of the southern city of Kherson that would put “hundreds of thousands” at risk from flooding if it’s blown up, and endanger water supplies to Europe’s largest nuclear power plant. Russia accused Kyiv of planning to strike the dam.
His comments come as Ukraine tries to fix its electrical infrastructure following waves of Russian missile and drone attacks on city centers and other important hubs.
The EU and the U.K. have separately announced new sanctions on Iran, which denies supplying Russia with drones used to carry out deadly attacks in Ukraine this week. Iran has repeatedly said it has not been involved with providing “kamikaze” drones to Russia despite mounting evidence to the contrary. On Thursday, the White House said Iranian military personnel have visited Crimea to assist with Russian operations targeting civilian infrastructure in Ukraine using drones. John Kirby, the communications coordinator at the National Security Council, said the presence of Iranian personnel was evidence of Tehran’s direct engagement in the conflict. “They can lie to the world but they certainly can’t hide the facts,” he said.
The European Union agreed to press ahead with emergency action to address the bloc’s energy crisis, with Germany yielding to pressure from other member states to pave the way for a temporary price cap on natural gas. After hours of intense negotiations, the leaders asked the EU’s executive arm to propose a price corridor to “immediately limit episodes of excessive gas prices.”
Mortgage rates are closing in on 7%, marking a swift climb that is rapidly cooling the housing market. The average rate on a 30-year fixed mortgage inched up to 6.94%, a fresh 20-year high, according to a survey of lenders released Thursday by the mortgage giant Freddie Mac.
Ship backlog progress. The queue of ships waiting to unload at the ports of Los Angeles and Long Beach fell from a peak of 109 ships in January to four vessels this week, according to the Marine Exchange of Southern California. Bottlenecks continue to delay cargo at other major U.S. seaports and at inland freight hubs, but the end of the backup at the big ports in California signals broader supply-chain tangles that have been troubling retailers and manufacturers are unwinding.
Warren, Booker urge CFTC to probe rising commodities prices. Sens. Elizabeth Warren (D-Mass.) and Cory Booker (D-N.J.) in a letter to CFTC Chair Rostin Behnam urged a series of studies to examine whether excessive speculation in commodities markets has contributed to higher prices of household goods.
Judge allows Biden student loan forgiveness plan to proceed, but appeal likely. The judge rejected six GOP-led states’ bid to halt relief program. The ruling comes after a recent hearing before U.S. District Judge Henry E. Autrey of the Eastern District of Missouri. The ruling is likely to be appealed, sending the case to a conservative panel of judges on the U.S. Court of Appeals for the 8th Circuit. The states may request an emergency stay from the appellate court to prevent the administration from moving forward in the interim.
Meanwhile, Supreme Court Justice Amy Coney Barrett rejected a bid to block Biden’s student-loan relief plan before it takes effect in the coming days. Barrett declined to take up an appeal brought by a Wisconsin taxpayers group that argued Biden doesn’t have the legal authority to implement the program. In the court filing, lawyers for the group argued that the program would be a “staggering blow” to the U.S. Treasury and taxpayers
CDC advisers want Covid vaccines to be part of regular immunizations. The Advisory Committee on Immunization Practices voted unanimously to put them on the same lists of measles, tetanus and other inoculations that adults and children 6 months and older should get in the U.S. The CDC usually follows the recommendations of its advisers.
Election Day 2022 is 18 days away. Election Day 2024 is 746 days away. 5,237,230 early votes already cast as of 10:24 p.m. Thursday, per the United States Elections Project.
KEY LINKS |
WASDE | Crop Production | USDA weekly reports | Crop Progress | Food prices | Farm income | Export Sales weekly | ERP dashboard | California phase-out of gas-powered vehicles | RFS | IRA: Biofuels | IRA: Ag | Student loan forgiveness | Russia/Ukraine war, lessons learned | Election predictions: Split-ticket | Congress to-do list | SCOTUS on WOTUS | SCOTUS on Prop 12 |