Daily Commentary

MarketMinder’s View: The titular release isn’t insignificant but keep it in perspective. First, the proposal: “The release of 400 million barrels of oil would more than double the agency’s biggest prior release, when IEA member countries in 2022 put 182 million barrels on the market after Russia launched its full-scale invasion of Ukraine, the officials said.” But per the International Energy Agency (IEA), global daily oil consumption is approximately 105 million barrels per day—so the release amounts to around four days’ worth of oil use? That is why we doubt the coordinated move would be fundamentally game-changing. The article concludes with a look at two past precedents: the aforementioned 2022 release and the start of 1991’s Gulf War. 2022’s drawdown of strategic oil reserves did little to quell oil prices, “as traders saw the release as a sign the oil crisis was more serious than they had anticipated.” Some observers view 1991’s action as successful because “IEA members joined in releasing more oil from stockpiles in a plan they had put in place ahead of the invasion. Prices fell more than 20% on the first day of the U.S.-led assault.” But we think this shows how both weren’t fundamental gamechangers. What matters is overall supply and demand for the foreseeable (roughly 3 – 30-month) future—and all the uncertainty weighing on sentiment surrounding that. “IEA members hold 1.2 billion barrels in public stocks, plus another 600 million in mandatory commercial inventories, IEA Executive Director Fatih Birol said Monday. By rough calculation, that is around 124 days worth of lost supply from the Gulf.” Nobody can predict when the conflict will end, but markets are aware of the latest developments—and will likely start moving on from this soon, if they haven’t already begun to. Absent a major, unexpected escalation that disrupts activity more broadly, we doubt global oil shortages are looming. For more, see last week’s commentary, “On the Iran Conflict.”

MarketMinder’s View: Gridlock reigns in Ottawa for now, but the times could be a-changin’: “The centrist Liberals, governing with a minority after an election last April, need opposition support to pass key legislation such as budgets. That can be a slow process, and [Prime Minister Mark] Carney has said he needs a majority to react more effectively to U.S. President Donald Trump’s trade measures. Carney ‌said in a statement ⁠that Lori Idlout of the small left-leaning New Democratic Party, who represents the Arctic territory of Nunavut, would sit ⁠with the Liberals in the House of Commons, the elected chamber. Idlout is the fourth opposition legislator to defect to the Liberals since last November and her decision means the party now has 170 seats in the 343-seat House, two ‌short of a majority.” The Liberals could gain that majority depending on the outcome of April’s special elections (three seats are vacant and two lean toward the Liberals). As always, MarketMinder is nonpartisan, favoring no party nor any politician. Our political assessments serve to determine developments’ potential market implications. In this case, if the Liberal minority government becomes a majority, a more active legislature could put status quo policies in jeopardy, creating business uncertainty—a matter worth monitoring for investors. That said, a one-seat edge isn’t huge and passing major, divisive legislation could still prove difficult.

MarketMinder’s View: First, a few quibbles. The headline gives the wrong impression the article is chiefly about the need for Fed “ease,” which is speculative and presumes doing so would auto-reduce long rates. But we think the charts herein—and discussion thereof—mostly show why that isn’t the case, as economic growth has been chugging along. On jobs, the first two charts underscore the ground we covered yesterday: “The 6-mo. annualized change in private sector jobs has been consistently low (between 0.2% and 0.4%) since last June. Viewed from this perspective, [last Friday’s] number was just more of the same slow growth that we’ve been seeing since last summer.” Moreover, from our perspective, headcount changes at the margin aren’t primarily what drives household consumption. Overall income matters far more—and on that score aggregate real disposable personal income growth can continue to drive expenditures (not that consumer spending is historically a key cyclical driver for the economy, as it tends to be very stable over time). It goes on to hit housing, but that is a small economic contributor. Take a broader view. The last chart helps on this front: “the latest ISM survey of service sector purchasing managers. This is arguably one of the most bullish indicators of late. With 3 stronger readings in the past 3 months, it’s a good bet that the economy’s largest sector is improving.” Cut out the headline noise, and the economy is doing better than most appreciate.