Suderman says: financial markets bounce on hopes recession will be avoided

Business confidence is picking up amid evidence that inflation has peaked, but don’t expect central banks to ease off rate rises. Higher inflation could be here to stay a while, but financial markets appear to have priced in this view. Stocks moved modestly higher, led by the Tech sector, Treasury yields pulled back from recent highs, and the economy still showed signs of growth led by services.

Stocks rallied, reversing recent weakness

• The tech-heavy NASDAQ rose from the bell, up almost 1.7% by mid-afternoon
• The VIX, Wall Street's fear index, fell to a fresh two-week low below 19
• The dollar index traded well-off its session lows, near 104.8
• Yields on 2-year and 10-year Treasuries traded at 4.88% and 3.99%, respectively, widening the yield curve between short- and long-dated bonds

Russian surge in Ukraine war might prompt high grain prices

• Russia is on the cusp of its first significant victory in six months, as its troops besiege the Ukrainian city of Bakhmut, and this might signal an end to the “grain initiative” which permits Ukrainian exports
• While most think this deal will be continued, there is a risk that Russian changes its mind and attacks ships and ports – reducing grain exports and causing higher prices

Commodities spurred by stronger buying, easing recession fears and politics

• We saw new speculative money coming into the commodity sector, prompting stronger grain and oilseed prices
• Crude oil prices were 1% higher, mostly tied to stronger Chinese economic data
• Corn and soybean prices were positive, helped by supply issues in Latin America and dews from Ukraine
• However, wheat supply issues might soon be a thing of the past. The door is open for GMO, or genetically modified, wheat – with its successful introduction in Argentina and Brazil – such that US acceptance can’t be far behind

US economic growth still evident, strongest in services

• For February, the US Purchasing Managers Survey composite index was at 50.1, with the services component at 50.6. The Institute of Supply Management's survey services component was at 55.1, very strong. In both cases, an index above 50 indicates economic expansion
• The service sector continues to see the strongest growth, good for the economy but bad for inflation (given its dependence on labor)

European growth tracks US, avoiding recession

• Europe’s economy is tracking the US, with the service sector leading the way toward a better-than-expected recovery and hopes that recession will be avoided
• Also in February, the S&P Global Composite Purchasing Managers Index rose to an eight-month high 52.0, up from 50.3 in January, reflecting rising business optimism

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com