The market's attention may be on rising bond yields, but Bank of America says there's a more immediate concern for the economy already feeling the sting of high energy costs.
Diesel prices set a new record on Thursday, topping $6 per gallon for the first time ever in the US. Investors are already attuned to crude oil prices, which have climbed past $100 per barrel and pushed up the cost of regular gas, but BofA says markets are underestimating the broader impact of surging diesel.
The combination of geopolitical tensions and global refining constraints has kept energy markets in focus as princes continue trending upward. In BofA's view, markets need to pay attention to the cost of diesel as a source of volatility, as it is the fuel source for much of the commercial economy.
"Markets stop panicking when policymakers start panicking…but no panic anywhere despite the highest 30yr yield since Jun'07 and spiking commodities; oil at $100/bbl takes headlines but diesel is the key real-economy pressure point: shipping, trucking, agriculture, construction, mining," BofA wrote in a note to investors on Friday. "Blasé markets + bravado policy = recipe for volatility."
Gas market intelligence platform GasBuddy said that while the headlines are focused on the price of gasoline, record-high diesel costs are too important to ignore.
"Not every day are new all-time records set, and this will be a particularly painful one for the economy that may not even be immediately felt, but record diesel prices will impact every cargo, shipment, every delivery Americans are taking, and are likely to reignite inflation up and down the supply chain," said Patrick De Haan, GasBuddy's head of petroleum analysis.
Gasbuddy noted that the prices of household goods and groceries are likely to be driven upward by higher diesel costs. That comes at a time when inflation weighing on consumer sentiment, and continues to outpace wage growth.
Finance pros have predicted recently that even while gas and diesel prices rise, the coming energy shock may be even larger market watchers are anticipating. The average cost of diesel fuel in the US has risen about 60% since the Iran war broke out in February.
