New data on inflation at the consumer level and oil inventory numbers are two reports that will have a hold on Wednesday's markets.
The consumer price index is released at 8:30 a.m. CPI is expected to rise 0.3 percent, or 0.2 percent excluding food and energy. Oil and gasoline inventory data is released at 10:30 a.m., and is expected to show supply of oil at about 2.3 million barrels.
Deutsche Bank chief U.S. economist Joseph LaVorgna says April CPI is not likely to be as important as May or June, which may show the increased pressure of rising energy prices.
"If tomorrow's number turns out to be weak ....people won't care," he said. "They're just going to treat it as the calm before the storm. But if you get a stronger-than-expected number, people are going to really freak out."
Lehman, in a note said it expects CPI to rise 0.2 percent. It notes that gasoline prices fell in April and that could be a factor. But we know those gasoline prices have been on the rise again, and oil is being watched very closely.
Oil again bubbled up Tuesday, gaining 1.3 percent to finish at $125.80 per barrel. According to Dow Jones, oil is now $21.65 or 20.8 percent above its inflation adjusted record high U.S. price of $104.15, set in April, 1980. Oil is up 11 percent since the beginning of May and is up 31 percent from January 1.
The stock market turned in a mixed performance Tuesday with financials giving up the most ground. The Dow slipped 44 to 12,832, while Nasdaq rose 6.63 points to 2495.12. The S&P 500 was close to flat, down 0.54 points at 1403.04. The dollar moved up 0.39 percent to a level of $1.5478 per euro. The yield on the 10-year rose to 3.909 percent as selling hit Treasurys. The two -year is yielding 2.477 percent.
CNBC's global energy analyst Dan Yergin, chairman of Cambridge Energy Research, says we are still not seeing the real impact of $125 oil, and that it will take a while for those prices to filter down and move through the economy. "It's just beginning to unfold," he said.
Yergin says he spends a lot of time speaking with CEOs and right now energy is their top concern. "This cost factor is now front and center for CEOs, no matter what kind of company. Whether it's an energy intensive company or whether it's a company worried about whether consumers are coming into their stores."
"Energy efficiency has a priority now that I've never seen before, and CEOs and senior managers really want to discuss it in a serious way. It's affecting investment decisions and their purchasing decisions as well as their concern about what their customers are doing," he said.
Yergin says the high price of oil is gradually affecting decision making, and high prices are not now having the impact of oil shock of the 1970s. Yet, he says if prices remain high and go higher, there's likely to be an almost oozing type of oil shock.
"It may be demand shock, dollar shock. It is an oil shock . ..and anything over $110 really is a shock," he said.
LaVorgna says he thinks demand destruction will ultimately stop the rise. Yet, "people aren't going to be sure what this energy price rise does," he said. Does it kill the consumer and lead to a deeper economic downturn? "Or does it unleash inflation and cause the Fed to raise rates?" he said.
LaVorgna shared an interesting chart he created. He looked at how oil prices compared to the share of household spending on energy in the GDP.