Bullish Flows Bolster SPX as Crude Oil & Diesel Prices Remain Elevated

SPEAKER_1 (0:00)

All right, let's get out to Kevin Green, who joins me now for a look at some of this data we've been getting. We already got the SMP Global Services PMI and the Composite. We've got ISM hitting the wire right now. Just walk us through what you're seeing there, KG. Good morning.

Kevin Green (0:14)

Good morning, Sam. So if we're looking at ISM Services PMI here, we actually did see that coming in a little bit lighter than the street's expectations. We were in expansion territory at 54.9, but the street was looking for 55.1 for the overall index. And if you're also looking at prices, that came in at 74, even. The previous print was 72.6, and this is the highest print that we've seen on the prices front since July of 2022 So we are seeing, obviously, prices continuing to move higher.

And let's say the manufacturing and the services index, for the most part, kind of on par for the street's expectations. New orders came in at 59.8. That's actually slightly lower than what we saw for last month at 60.9.

And the employment number came in at 50.1. And so slightly above expansion here. So let's say, for the most part, in line with the street's expectations, the headline number coming in a little bit light here. We are seeing the equity markets actually kind of try to break out to the upside after this particular report. And this kind of maps and matches what we saw at the S&P Global Services PMI as well, which that was more of a revision that did come out there, but that came in at 58.8. And if you're looking at the prices component, once again, continuing to surge to the upside, but you are starting to see new orders, especially when you're looking for exports, at exports, actually improving over time. So that is something that was a bright spot in the S&P Global PMI, that was a little bit of a change in what we've seen in the past year. So a pretty decent report. Once again, equity is still trying to move higher S&Ps, trying to test that 7740 level right now.

SPEAKER_1 (1:46)

Yeah, it's interesting. It seems like it's fairly consistent with some of the manufacturing as well. I mean, I know obviously a very different survey, but with the headline number having come off just slightly, although still healthily above the boom or bust line, you do certainly have that prices paid component that is something to keep an eye on, particularly as it could mean down the track. We're looking at higher prices potentially being passed on here. So obviously a reading of 74 is something to watch. But yeah, it looks like some healthy readings coming from the services sector. How are you looking at oil and yields this morning? Obviously, we've been talking about that decoupling. We're seeing that playing out today as well.

Doesn't seem to be having too much of an impact as far as this 530 level on the 10-year force stocks today. But just walk us through what you're seeing there.

Kevin Green (2:37)

Yeah, I think we have seen a firm breakdown when it comes to the correlation between oil prices as well as yields moving higher. Obviously, they're probably going to still have a relationship. But I think the market is now focusing on what the dollar is doing and that relationship to yields. The dollar continues to move higher. Yields also are tracking higher as well. I think that's why we are seeing the equity market, for the most part, try to hold up on the headline index level because technology is actually relatively resilient when you're looking at that price action. On the oil front, you did actually see some strikes over the weekend when it came to tankers. We are starting to see that elevation and concerns on the tanker front, especially for the Bab El-Mandab off of the coast of Yemen. We'll see how that develops over time. There were reports that we saw a Saudi or Ramco facility being hit.

Those reports were correct, but they do say that they were not impacted by those strikes on that particular power station here. So that's why we were seeing crude trading at around $90.

Around $88, $87 has been the key area of support or received some buyers really trying to step in. But crack spreads are starting to move a little bit lower. And that is because not only the feedstock or crude oil moving a little bit lower, but also the byproducts moving a lot lower on a relative basis like diesel, which is up about 1% today, but now trading at around $4.54. That's been the key ingredient when it comes to those crack spreads here. So overall, I think yields are kind of trading on their own. I think the big headline that we do have this week, Sam, even though we have a light economic data for a week, 10-year treasury on Wednesday, we will see an auction that actually does occur here. We had a very weak auction on that five year. Does that also translate to more weakness on the foreign buying front? And I think that could be another reason for yields to either top out at these current levels or continue to move higher.