Suderman Says 03292023

Real economic data is beginning to reflect the benefit of moderating US long-term interest rates in housing demand and equity prices. Recent housing market data suggests that consumers are adjusting to a modestly higher rate environment, and still have enough confidence in the economy to make new home purchases.

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Consumers remain confident

New home purchases tend to hinge most on consumer confidence in the economy, whatever the prevailing interest rate
US residential mortgage refinancing activity hit a six-month high last week amid the lower rates, making it easier for consumers to service their loans in this current economic environment
Home loan applications rose for the fourth week in a row last week, which is the longest streak in four years
The most recent week saw a 2.9% increase in loan applications, with a 4.8% rise in refinance applications, and a 2% rise in new purchase applications

Equity indices up, Dollar and Bonds flat

The broad S&P 500 index was up 1.1% at 4,014, while the tech heavy NASDAQ was up 1.4% at 11,876
The VIX, Wall Street’s fear index, fell to 19.2
The dollar index fell 0.3% higher at 102.7, with £/$ 1.23 and €‎/S 1.08
Yields on 2- and 10-year Treasuries were unchanged at 4.06% and 3.56%, respectively

Oil stocks fell, oil price flat

Crude oil prices were flat by midday to $73.15 per barrel, despite lower crude oil stock in the US
US commercial crude oil stocks (excluding the Strategic Petroleum Reserve) fell by 7.5 million barrels in the week ending March 24, to 473.7 million barrels, 6% above the five-year average for the week
Gasoline stocks fell by 2.9 million barrels, 4% below the five-year average for this time of year
Gold was off 0.4% at $1,966 per ounce
Wheat prices led the way higher on domestic and foreign supply uncertainty, but prices are now well off their highs following the recent sharp rally
Corn and soybean prices remain firm on solid demand factors, although all of these markets are well off their session highs at midday

Congested Chinese ports signals economic difficulties for its domestic manufacturing

Chinese ports are increasingly congested with empty containers as orders for consumer goods decline
Some of that is due to the current economic weakness in Europe and in the United States, but much of it comes from resourcing of products outside of China following three years of Covid-related restrictions and supply chain problems
A significant number of companies pulled investments out of China over the past several years as countries seek more diversified sources for products, including bringing the production of the most essential products back home
This trend is expected to weaken China’s role as the world’s global manufacturing center, while also making trade protectionism threats less effective
China’s response is to strengthen its efforts to expand its Belt and Road Initiative across Asia, Africa, Europe, and South America
Such investment in infrastructure projects increases demand for Chinese-made construction equipment, creating demand for manufactured products back home
However, it’s also estimated that China ended up bailing out 22 developing countries between 2008 and 2021 at a cost of $240 billion, making these countries further obligated to China

Russian exports squeezed (again)

Wire service reports indicate that Viterra will join Cargill in no longer elevating grain out of Russia in the new marketing year as foreign exporters continue to exit the Russian market
Some of this is likely pressure from Russia, and some of it is pre-emptive in nature as problems with doing business with Russia continue to increase
Regardless, it puts more questions around Russia's ability to export

Analysis by Arlan Suderman, Chief Commodities Economist.

Read more of Arlan’s thoughts at StoneX Market Intelligence at https://my.stonex.com/

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