8 Key Items Shaping the Stock Market Wednesday: Diesel Prices, CPI, Oracle

Diesel Fuel

These are the early headlines and other items poised to influence the market at the start of trading Wednesday. As we share this collection of market drivers, U.S. equity futures point to a mixed open but that could change based on what we see in the February CPI report at 8:30 AM ET (see items 3 and 4 below for more on that).

1. For oil traders, the big question isn’t the headline size of barrels released from strategic reserves, but at what pace they can hit the market. As my colleague Grant Smith notes, JPMorgan estimates a combined release rate of about 1.2 million barrels a day is what seems feasible at the moment. US data from the 2022 SPR release show they managed slightly over a million barrels a day for just a single month, and at times the flow rate was less than half that level. By comparison, around 15 million barrels a day of supply could be disrupted through Hormuz, depending on how it’s measured. (Bloomberg)

Reports this morning indicate the IEA is proposing the release of a record 300-400 million barrels of oil from strategic reserves, far more than the 182 million barrels IEA members put into the market in 2022 after Russia invaded Ukraine. The context of the potential release cadence vs. disrupted supply is taking some of the shine off the IEA’s potential plan, lifting oil prices this morning as is continued hostilities in the Strait of Hormuz. Reports indicate three vessels were hit by projectiles.

2. Surging diesel prices are threatening to slow global economic activity as the war in the Middle East pressures supplies of both the industrial fuel and the type of crude oil most ‌suited to produce it, traders and analysts said… "Diesel is the most exposed product to this conflict structurally," Shohruh Zukhritdinov, founder of Dubai-based Nitrol Trading, said. "Diesel underpins freight, agriculture, mining and industrial activity, making it the most macro-sensitive barrel in the system." (Reuters)

While we and other consumers quickly feel the impact of higher gas prices, the climb in diesel prices is a sleeper form of inflation. Indeed, those prices have risen much faster than gas prices and tend to drive up transport costs, which bleed through to food and other consumer prices.

3. Inflation isn't giving up without a fight. After signs of cooling in January, price growth likely picked back up last month, according to forecasts. That should help Federal Reserve officials justify keeping interest rates steady at next week’s policy meeting. (Barron’s)

The February CPI will be published at 8:30 AM ET, and the headline figure is expected to tick up to 2.5% on a year-over-year basis, up from 2.4% January. The market sees the closely watched core CPI reading holding at 2.5% on a year-over-year basis. But let’s consider the timing of the data backing this morning’s report and the start of the U.S.-Iran conflict – February 28, the last day of the month. This means the increases we’re seeing in energy prices and their impact will show up in the March data, and subject to the duration of the conflict, following months.

4. The Trump administration believes it can withstand a brief spike in oil prices — for as many as four weeks, as one person close to the White House suggested — before the political hit does lasting damage… They have three to four weeks “where they can ride out what they need to” before oil prices become a more durable political problem… (Politico)

In the latest Quinnipiac Poll more than 7 in 10 voters said they are very concerned or somewhat concerned that the war will cause oil and gas prices to rise in the U.S. Here’s the thing, which was called out by Daniel Yergin, vice chairman of S&P Global and a Pulitzer Prize-winning energy historian:

It takes time to bring the production back. Some will be able to come back more quickly than others, but this doesn’t happen with lightning speed. About 20% of production can be brought back online in a matter of days. Another 50%-60% could take a few weeks or months, depending on the state of the reservoir and how it was shut in.

5. Oracle’s cloud segment, which now represents over half of the company’s sales, grew 44% from a year ago, to $8.9 billion. The growth was led by Oracle Cloud Infrastructure—renting out servers over the internet—which saw revenue grow 84%... Oracle’s backlog grew by $29 billion to $553 billion. About $300 billion of that is a single multiyear contract with OpenAI… Even though operational cash flow hit $7 billion for the quarter, it was erased by $19 billion in data center capex. Oracle has all but ceased share buybacks. Oracle reiterated its expectation of $50 billion in capex for its full year, ending May. (Barron’s)

This more supporting color for the vibrant guidance issued by Dell (DELL) and Hewlett Packard Enterprise (HPE) , which keeps us bullish on the Pro Portfolio’s chip positions. But we also heard about Oracle’s (ORCL) internal AI adoption and usage efforts to help its software service business develop new tools and become more efficient. This includes embedding agents into existing applications, which resonates with comments from Anthropic. In short, another data point that the damage done by “SaaS-Pocalypse” was overdone.

6. Morgan Stanley has started hiring contract staff in Hong Kong to handle a surge in stock listings, aiming to control costs while meeting stronger demand in the Asian financial hub, three sources with direct knowledge of the matter said. (Reuters)

This certainly adds to our decision to pick up additional shares of Morgan Stanley (MS) for the Pro Portfolio. It also serves as a reminder that investment banking activity and the fees collected span other markets than just the U.S.

7. Economic data today per TipRanks: MBA Mortgage Application Index (Weekly), CPI (February), EIA Crude Inventories (Weekly).

8. Companies reporting today per TipRanks: AM – Campbell Soup (CPB) , Sprinklr (CXM) . PM – Bumble (BMBL) , Firefly Aerospace (FLY) , Petco Health and Wellness (WOOF) , Stitch Fix (SFIX) .

At the time of publication, TheStreet pro Portfolio was long MS.