Following up on yesterday's hot CPI print, markets are wrestling with a scalding hot PPI (producer prices) report this morning.
Here's from Bespoke Investment Group's morning note:
"Headline PPI surged 1.4% - not y/y but m/m while the core reading surged 1.0% versus estimates for an increase of just 0.3%. The headline index was only forecast to increase 0.5%. PPI tends to be more volatile than CPI, but these numbers are hot, hot, hot. As you would expect, the immediate response in the futures market was for yields to spike higher while equities erased half of their pre-release gains."
We've maintained all along that the goal of the President's China trip this week is to come away with a warm embrace and all (or some) manner of win/wins on trade, etc... That's the goal anyway, and the following on the International Energy Agencies latest Oil Market Report* just adds additional incentive to that aim.
The headline numbers in context
The 2.45mm bpd Q2 demand destruction against 12.8mm bpd lost supply is the critical ratio — demand has only destroyed ~19% of lost supply. That's the bullish energy thesis in one fraction. The market isn't clearing through demand alone; it's clearing through inventory liquidation at a historically unprecedented rate. The IEA's May OMR confirms cumulative supply losses already exceed 1 billion barrels with over 14 mb/d now shut in.
IEA
Inventory math is brutal
The ~250 million barrel draw in March/April is roughly 4 mb/d on average. The May OMR's Q2 land-based stock decline forecast of 5.7mm bpd (which matches Bespoke's figure) implies the pace is accelerating from Q1 — and that's with IEA emergency releases already in the market. IEA member countries agreed in March to release 400 million barrels from emergency stockpiles, which is cushioning the blow but, as Birol said, it's pain reduction not a cure.
IEAInternational Energy Agency
The EIA STEO confirms the refining crunch
The EIA's May 12 STEO assessed production shut-ins averaging 10.5mm bpd in April, with a peak near 10.8mm bpd expected in May as storage limits force additional voluntary shut-ins. The refiner run cuts noted by Bespoke (~5mm bpd globally) are a direct consequence of feedstock unavailability — refineries not directly affected by the conflict are struggling with record-high costs, with Singapore middle distillate prices reaching all-time highs above $290/bbl.
U.S. Energy Information AdministrationEuronews
As we've noted, markets remain amazingly resilient amid the, let's call it concerning, setup... This in our view owes to legitimate optimism over China relations going forward, perhaps stubborn optimism around Hormuz, expectations of a lower global tariff regime, massive AI capital expenditures supporting the economy and folks with money still spending on fun like there's no tomorrow.
How long can it last? Of course that's anybody's guess...
Here's your morning rundown*:
This morning's Producer Price Index report for April came in well above expectations, with wholesale prices rising 1.4% for the month and 6.0% over the past year — both the largest gains since early 2022. Gasoline prices at the producer level surged over 15%, reflecting the continued impact of the Iran conflict on global energy markets. Perhaps more notable, services inflation also accelerated sharply, suggesting price pressures are beginning to spread beyond energy into the broader economy. This follows Tuesday's consumer inflation report, which also ran hot at 3.8% annually. Taken together, the two prints confirm what we've been positioning for: a stagflationary environment where energy-driven inflation is persistent, not transitory.
Iran & the Strait of Hormuz
The inflation data doesn't exist in a vacuum — it's a direct consequence of a conflict that remains unresolved. President Trump declared the ceasefire with Iran on "massive life support" earlier this week after rejecting Tehran's latest counterproposal as "unacceptable." The Strait of Hormuz — through which roughly 20% of global seaborne oil trade normally flows — remains effectively closed to commercial traffic. Until that changes, energy prices will stay elevated and the inflationary pressure we saw in this morning's data will continue. A ceasefire and a reopened strait are two very different things, and the market hasn't fully priced that distinction yet.
The China Trip
Against this backdrop, President Trump arrived in Beijing today for two days of high-stakes talks with Chinese President Xi Jinping, with trade, technology, Taiwan, and the Iran war all on the agenda. Trump is expected to encourage Xi to use China's influence with Iran to help reopen the Strait of Hormuz and advance a peace deal — a significant ask, given that analysts believe meaningful progress on Iran is unlikely until after the two leaders meet. On the trade front, deals involving Chinese purchases of U.S. agricultural products and Boeing aircraft are widely anticipated, and discussions around a formal US-China trade and investment board are on the table. The trip has the feel of a president seeking a foreign policy win — and markets will be watching closely for any signal that China can serve as a meaningful back-channel to Tehran.
What this means for your portfolio
Our energy holdings, real asset exposure, and defensive equity positions were built for exactly this environment. We remain well-diversified across sectors that historically perform in periods of elevated inflation, and we continue to hold protective positions designed to cushion against sharper market moves should conditions deteriorate further. The China summit is the most important geopolitical variable to watch over the next 48 hours — any credible signal of progress on Hormuz would be meaningful, and we're positioned to respond accordingly.
This note is for informational purposes and is not a solicitation to buy or sell any security. Past performance is not indicative of future results. Please contact your advisor with any questions.
*Prepared by Marty Mazorra, Chief Investment Officer, Private Wealth Advisors. Research synthesis and drafting assisted by AI tools under advisor review. All market views, analysis, and recommendations are those of the advisor.
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