Perspective: Morning Commentary for October 9

October 9 – Stock futures traded mixed to weaker early this morning, with traders anticipating this afternoon’s release of the minutes of the September Federal Open Market Committee meeting. Those minutes are expected to show whether the Fed’s 50 basis point rate cut on the 18^th was an easy decision, or a hard sell by Fed Chair Jerome Powell. Traders are also anticipating key inflation data the next two days, as well as early third quarter earnings reports, while monitoring the landfall of a powerful hurricane off the coast of Florida that will cost our economy billions of dollars. The VIX is trading near 22 this morning, while the dollar index is trading near 102.6. Yields on 10-year Treasuries are trading near 4.03%, while yields on 2-year Treasuries are trading near 3.96%. Crude oil prices remain weak, while the grain and oilseed markets firmed overnight.

Hurricane Milton continues to barrel its way toward Florida this morning. It restrengthened to a Category 5 storm late on Tuesday, although it is expected to weaken as it get closer to landfall late today or early tonight. Even so, it is expected to be a very strong storm, likely of Category 4 strength or stronger, when it strikes land somewhere near Tampa. Millions of people have been told to evacuate ahead of what is one of the strongest hurricanes to ever form in the North Atlantic basin area. A storm surge of up to 12 feet is expected to sweep into an area that is home to several million people. Much of Tampa Bay is little more than 10 feet above sea level. Big waves will be on top of that storm surge. The latest runs have Milton making landfall just south of Tampa, although those forecasts continue to move around. The storm is expected to remain at hurricane strength to varying degrees all the way across Florida, during the day on Thursday, damaging citrus groves, but also potentially doing significant damage to Florida’s phosphate fertilizer industry, depending on its path. Florida accounts for more than 62% of U.S. phosphate fertilizer production, which could lead to significant shortages as we prepare for the 2025 growing season.

Israeli airstrikes killed two possible successors to Hezbollah, according to Israeli Prime Minister Benjamin Netanyahu on Tuesday. The previous leader had been killed days earlier by Israeli strikes. That has Hezbollah speaking of potential ceasefire talks. In fact, it seems to have dropped its demand for Israel to end the war in the Gaza Strip just to stop Israel from striking it. That eased concerns a bit on Wall Street yesterday regarding the potential for the war to broaden in the Middle East, although it may also force Iran’s hand to get more engaged in the war, with its proxy groups currently losing. To this point, Iran’s been able to fight this war through its proxy groups while claiming innocence. It may not be able to maintain that position much longer. Iran hit Israel directly with some 180 missiles on October 1^st, and then warned against retaliation against it. However, Israel has already promised retaliation at the time, and with the method, of its choosing. Based on the centuries long history of this conflict that has roots in Abraham’s family, I doubt that we are seeing the beginning of the end of this conflict, unfortunately. We may see a period of calm for a while, but that would likely be a time of each side regrouping. As such, the risks to energy and fertilizer supplies exported from the region may ebb and flow, but they’re not likely to go away any time soon.

Tensions are again rising in the Taiwan Straits, as leadership in both China and Taiwan exchange words ahead of Taiwan’s National Day on Thursday. Taiwan’s President Lai Ching-te is expected to address the island nation on Thursday, where he is expected to once again speak of Taiwan’s independence, and how it will be impossible for the People’s Republic of China to become Taiwan’s motherland because Taiwan has older roots than does the Mainland China. Lai’s speech on Thursday is meant to mark the anniversary date for when the Republic of China overthrew the Chinese dynasty rule in 1911. However, that republican government fled to Taiwan in 1949 after losing a civil war with Mao Zedong’s communist regime.

The Chinese Communist Party celebrated their 75 years of rule last week. It’s long been their position that they have unfinished business, and that is to once and for all seize control of the Republic of China that is now located on Taiwan. The fact that Taiwan is now home to most of the world’s production of the highest quality microchips provides added incentive for China, but its primary motivation is steeped in cultural history. Chinese authorities are already warning Lai regarding possible comments that he might make that might escalate tensions. It is believed by some that China, based on its previous behavior, will respond with military action around the island as an intimidation factor. Lai’s inauguration in May resulted in China conducting “punishment” war games around the island nation. There’s been little news coverage of the recently escalating tensions in Southeast Aisa due to the focus on the Middle East, but this is another hotbed area where tensions continue to escalate to the point where a spark could ignite a fire at any point that would be expected to be negative for commodity trade with China.