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Investors have trained themselves to fade geopolitical and other market shocks, which have come fast and furious in the 2020s, still it seemed telling that U.S.stock indexes, including the S&P 500 and Nasdaq Composite, finished in positive territory on Monday as the Iran war continued.
The bounce after early weakness came even as oil futures ended sharply higher, with West Texas Intermediate, the U.S. benchmark, up 6.3% at $71.23 a barrel, while Brent crude advanced 6.7% to $77.74 a barrel. Crude had jumped around 12% when markets opened Sunday night.
For the grain and oilseed markets, only soybean oil futures, which are closely correlated to moves in oil futures, saw a gain. Wheat, which typically has also benefited from upside volatility in oil, fell sharply after May SRW hit an eight-month high overnight. Investors appear skeptical that the conflict will spark an oil shock capable of derailing the global economy.
- “I think the war is already over, the Iranians just don’t know it,” markets economist Ed Yardeni of Yardeni Research, told Bloomberg Television.
Much could change – and rapidly. An escalation that sees a U.S. or Israeli invasion of Iran – or any response that effectively widens the conflict – could send oil prices sharply higher from here, noted Tom Essaye, founder of Sevens Report Research, in a note. On the other hand would spark significant relief.
- He wrote: “Now, clearly the conflict isn’t positive for markets and it does add to already rising investor concerns. And at a minimum, we can expect more volatility near term. However, at its current state, the Iran conflict is not a bearish gamechanger (despite any short-term drop) and the medium-term direction of this market is still being determined by 1) AI sentiment, 2) Economic growth and 3) Fed rate-cut expectations.”
We would argue that the conflict is also likely to take a backseat to fundamentals in the grain market barring a further widening of the conflict, including damage to oil infrastructure in the region, though there’s one important wildcard. China has denounced U.S. military action in Iran.
Traders will be watching Beijing for any sign rising diplomatic tensions could derail the planned late March-early April summit meeting between President Donald Trump and Chinese leader Xi Jinping, which would raise concerns about the country’s willingness to follow through on soybean purchases.
Fertilizer shock?: It’s the input side that could bring real pain for producers, given the Middle East’s crucial role in the fertilizer supply chain.
Bloomberg reported that Qatar shut down liquefied natural gas production at the world’s largest export facility after it was targeted in an Iranian drone attack. Natural gas is a crucial input for nitrogen-based fertilizers.The country provides around 11% of global urea exports, with nearly 45% of those shipments coming from Persian Gulf facilities more broadly, Bloomberg noted.
- In New Orleans, the price of March barges for urea were $60 to $80 higher on Monday compared with Friday prices, according to Bloomberg. And there is “potentially hundreds of dollars per ton increases in the coming days,” Taylor Eastman, a fertilizer trader at Andersons Inc., told the news service.
‘Buy on the sound of cannons…’: That’s a phrase attributed to Baron Rothschild, though likely apocryphal, during the Napoleonic wars. It concludes…”and sell on the sound of trumpets.” The first half of the saying, at least, has been borne out by recent history when it comes to the stock market, as the table below from Ryan Detrick, chief market strategist at Carson Group, illustrates:
“Yes, near-term volatility and potential weakness are common, but as you go out, the returns are more positive—in fact, the S&P500 is up a median of more than 5% six months after the events” illustrated above.
Canola tariff slashed: China on Saturday sharply cut its tariff on Canadian canola in the final ruling of an anti-dumping investigation that stretched 17 months, Reuters reported. The cut comes after a thaw in relations between Ottawa and Beijing that was on display earlier this year when Canadian Prime Minister Mark Carney visited China. At the time, Carney announced an agreement that would see Canada allow 49,000 Chinese electric vehicles into its market at a tariff of 6.1% while China would ease tariffs on Canola.
The final anti-dumping tariff was lowered to 5.9% from a preliminary 75.8% imposed in August, the report said, citing a statement from the commerce ministry. The levy will be effective from March 1 and will last for five years.Canadian canola also remains subject to China’s standard 9% import tariff, for a total effective duty to 14.9%.
The outcome is largely in line with Carney’s expectations. After his visit to Beijing in January, the prime minister had said he expected a total tariff rate of around 15%.
- China was Canada’s second-largest market for canola in 2024, Reuters noted..
Well-timed bets: Bloomberg reported that six accounts on betting platform Polymarket made around $1 million in profit by betting the U.S. would strike Iran by Feb. 28. The accounts were all created in February and had placed bets only on when U.S. strikes might occur, with some of their shares purchased just hours before the first explosions were heard in Tehran, the report said.
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