Let's get to the big story.
Breakdown while oil markets experiencing historic volatility as the conflict in the Middle East continues on Sunday evening.
Prices for both WTI and Brent initially rocketed past $100 a barrel, $120 a barrel.
Now the logjam in the Strait of Hormuz is forcing major Middle East producers to slash output as unused crude piles up in storage with nowhere to go.
And meanwhile G7 Energy.
Ministers are huddling to discuss an emergency stockpile release.
Well joining me this morning to weigh in on the volatility is Michael Reinking, Senior Market Strategist at the New York Stock Exchange.
Good morning, Michael.
Thank you so much for joining me.
Good morning.
Thanks for having me.
Well, we've been seeing a lot of volatility, not just in oil prices, but here on Wall Street with stock prices above seeing historic volatility.
But what do you make of everything that we're Seeing what do oil prices actually tell you?
Yes, so I mean we've actually kind of moved into this one variable market right where you kind of equity markets and all financial markets really are all just focused on kind of oil prices and what's happening in the Middle East, right?
Yesterday we saw kind of that massive upside move on Sunday evening after we saw Israel kind of strike some energy infrastructure which was kind of an escalation of the conflict.
But then we started to hear some stories about the G7 releasing some reserves.
We saw Saudi Aramco kind of go out with some spot tenders which took oil off the kind of highs and then you know during the day we had the comments from President Trump suggesting that you know the war was kind of farther along than kind of markets were.
Starting to price in and trying to kind of calm markets and suggesting that there is that they are kind of considering an off-ramp, and so I think that's kind of the biggest kind of question from here is where does this conflict go.
I don't think anybody really has an answer to that, which makes it very difficult.
Yesterday you had about a 2.5% move.
Day off of the lows with equities rallying with the VIX kind of over 30, that's kind of about what you would expect in terms of the volatility if you kind of think of that rule of 16, so it's like a little over 2% for the mid-30s mid-30s.
It's, it's, it's, you know, there's there's only one thing everybody's focused on right now.
If it gets, you know, a little bit more difficult, you know, the focus is, you know, the one thing positive I guess in some ways is that it's shifted this kind of focus around kind of the AI and kind of that AI anxiety and that's kind of moved a little bit to the back burner here in the near term.
And you bring up an important point because all eyes have been on the Middle East and also the price of oil, but when we take a step back, we know that economic data is key right now and we did get that jobs report.
So what did you make of the non-farm payrolls?
Yes, I mean, clearly it was a disappointing report, but within that, there were big adjustments.
To the birth birth death model and if you looked at where I mean it was pretty negative right so it's like hard to sugarcoat it, but there were big declines in healthcare and social assistance right that has been a driver you know that we've pointed out as kind of that's been a driver of job growth over the last couple of years we've highlighted that that's not necessarily the most.
Economically sensitive sector right and so you know we did see kind of a big move lower there.
There were also some strikes in that within that industry so if you kind of normalize that a little bit that gets you kind of back to a flat kind of a flattish number for non-farm payrolls clearly not a positive this morning we got. an uptick in the weekly ADP numbers, which is a positive.
The bigger question from here is how long how long are oil prices going to stay where they are and then what impact is that going to have on inflation.
We get the CPI report tomorrow.
How much does that bleed into inflation.
And then you know how much does that start to impact the consumer wallet and there was this expectation that the tax cuts coming out of the one big beautiful bill would be a positive tailwind for the consumer, putting some extra money in the pocket potentially that recycling its way back into markets.
That looks like it's now going to be kind of reallocated to kind of prices that an increase in prices at the pump, so that's kind of removes one of those positive tailwinds that we had kind of heading into 202 and you brought up inflation and that is also something that we're paying attention to when it comes to economic data this week, but You mentioned, the longer the crisis in the Middle East continues, the concerns about prices at the pump here in the US, especially as we head into summer driving season.
Yes, so are you concerned about stagflation?
Yes, I mean that's look, I mean that's, you know, once you had that kind of kind of report on Friday, right, that was kind of the clear, you know, kind of the clear next step to you know start to think about.
Look, I think we started to see there were some signs that we're seeing some acceleration in some of the economic activity, right, some of the the the survey data that we had seen last week was kind of reasonably positive.
The ISM survey surveys both manufacturing and services came in a little bit ahead of expectations.
Once again, unfortunately it really comes back to kind of how long this conflict kind of continues and how long.
Oil prices stay higher, you know, one thing to kind of think about is that, you know, with the energy independence that we've kind of created here in the US, right, this disproportionately kind of impacts other economies around the world, right?
And so part of what we had seen last week was very much kind of an unwind of what we've seen throughout the start of the year, right, where you had US markets outperforming kind of other global markets because if you think about.
Middle Eastern oil, 80% of that goes to Asia.
LNG, it's like I think it's about 8 85% of the Middle Eastern LNG goes to Asia with the other 15% of that going to Europe, right?
So we're set up in a little bit of a better spot relative to those other areas of the market.
So it's like having the best house on a bad block, I guess.
That's a very helpful analogy there because when we look at central banks across the globe, as you mentioned, the energy reliance of European economies, Asian economies, that does affect the central bank outlook for the European economies, not to mention Asia, but there are a lot of moving parts here.
So finally tell us what you're seeing in the bond as well as the FX markets and why this matters right now.
Yes, I mean what we've seen is Under the kind of typical conflict playbook, you see the US dollar rally and Treasury yields moving lower.
We saw the opposite of that.
We saw the US dollar moving higher, but we didn't see Treasury yields moving lower and that was really due to the fact that we've seen oil prices moving higher and this kind of concern that you were going to see that kind of bleed into kind of inflation as we move forward.
It does put central banks in a very difficult spot.
Where if you start to see kind of that economic activity slow down while you have inflation moving, it does kind of remove some of the kind of handicapped some of their tool kit that they can use kind of in the near term and that's why you've seen kind of markets push out the expectations for rate cuts from around the summertime into the fall right into the back half of this year, but it's.
If we find an off-ramp here quickly and you can kind of see the administration putting in some measures to kind of help move oil prices lower again or you see Venezuelan oil start to come on the market, that could help to alleviate some of that pressure.
Well, there are a lot of moving parts here and you and I will continue to monitor the situation and what comes out of the administration.
So thank you so much for joining us.
Thank.
Thank you, Michael.
