ISM Index

From Scott Grannis:

"The Institute for Supply Management's service-sector releases for June showed substantial improvement, as seen in these charts. Both the general indicator as well as the prices paid index have risen to levels that are consistent with the end of a recession."

So far so good. The ISM Index is still tracking oil prices, but somewhat less so. The key to ending the recession is to remove the inelasticity of oil. I also noted the sudden jump in yield across the curve in one day, yesterday. We are seeing nominal growth in GDP, but dominated by inflation.

The thing to watch is oil inventories, so let's check the DOE report:

"U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) decreased by 0.4 million barrels from the previous week. At
343.4 million barrels, U.S. crude oil inventories are above the upper boundary
of the average range for this time of year. "

We want oil inventories to be decorrelated from the ten year yield. More precisely, we want it decorrelated by design, not by default.