Soft in the head: Thursday data challenges hawkish Fed
Nasdaq up slightly, S&P 500 edges red, Dow declines
Industrials weakest S&P sector; Tech leads gainers
Euro STOXX 600 index falls ~1.4%
Dollar, up; crude, gold down; bitcoin off >1%
U.S. 10-Year Treasury yield dips to ~4.27%
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SOFT IN THE HEAD: THURSDAY DATA CHALLENGES HAWKISH FED
Data released on Thursday seemed engineered to woo the Federal Reserve into taking a more dovish stance.
Producer prices unexpectedly fell by 0.2% in May, marking a sharp reversal from April's 0.5% surge and defying analyst expectations for a 0.1% increase.
Year-over-year, the Labor Department's Producer Prices Index (PPI) USPPFD=ECI - which tracks the prices U.S. companies get for their goods and services at the figurative factory door - was up 2.2%.
That's within spitting distance of Powell & Co's average annual 2% inflation target.
Stripping away volatile food, energy and trade services, so-called "core" PPI was flat to April and held firm at 3.2% on an annual basis
The report comes on the heels of the one-two punch of Wednesday's cooler-than-expected CPI report and the Fed's buzzkill dot plot, which lowered rate cut expectations this year from three to one.
"Thursday's weaker-than-expected PPI data is another sign of continued progress on inflation, and it keeps the prospect of a rate cut alive in 2024," Clark Bellin, president and chief investment officer, Bellwether Wealth.
It's the third of four major indicators to suggest price growth remains on a downhill trajectory, even if the grade is more gradual than many, including Powell himself, might prefer.
The fourth and final piece of the puzzle - the Commerce Department's PCE report - is due two weeks from tomorrow, on June 28.
"The PPI data also tends to determine the trajectory of the Fed's preferred inflation gauge, the PCE, so the soft PPI data bodes well for a soft PCE reading, which will be released later this month," Bellin adds.
The number of U.S. workers who are queueing up for unemployment benefits USJOB=ECI surprised economists by jumping by 5.7% last week to 242,000.
That was the highest number of initial claims since August of last year.
While it's generally not nice to cheer longer lines outside the unemployment office, the data falls right on the heels of Powell's presser at which he noted the labor market's tightness remains a barrier to cooling inflation, and by extension, a normalization of monetary policy.
And the underlying trend, as expressed by the four week moving average of initial claims, is on the upswing.
"Initial claims have been drifting up for some time, but the big increase this week leaves the uptrend far harder to dismiss," says Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.
Ongoing claims USJOBN=ECI, which lag initial claims by one week, increased by 1.7% to 1.82 million, well above the pre-pandemic norm.
"Greater layoffs will probably mean that the labor market starts to look a lot weaker very soon," Allen adds. "Especially when combined with the meaningful slowdown in gross hiring suggested by most of the business surveys."
Indeed, the most recent JOLTS data shows a slowdown in hiring, suggesting that it's taking longer for laid off workers to find suitable replacement gigs.
(Stephen Culp)
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FOR THURSDAY'S EARLIER LIVE MARKETS POSTS:
WALL STREET IS A MIXED BAG WITH TECH BOOSTING NASDAQ - CLICK HERE
FIRST HORIZON NEEDS MORE THAN STOCK BUYBACKS TO SUPPORT CURRENT VALUATION, J.P. MORGAN SAYS - CLICK HERE
U.S. STOCK FUTURES TRY TO SORT OUT ANOTHER ROUND OF SOFT DATA - CLICK HERE
MUSK'S PAY BATTLE ECHOES STEVE JOBS AND APPLE IN '80S - CLICK HERE
MANIFESTO, SHMANIFESTO, SHOW ME THE MONEY - CLICK HERE
FX HEDGING ATTRACTIVE AHEAD OF US ELECTION - GOLDMAN - CLICK HERE
STOXX: CARS DOWN, ASML NEAR 1,000 EUROS - CLICK HERE
EUROPEAN STOCK FUTURES DIP - CLICK HERE
DATA IS KING, FED ITS SERVANT - CLICK HERE
Inflation gauges https://reut.rs/3z2GXPW
Initial jobless claims https://reut.rs/45lOzZG
Continuing claims https://reut.rs/3Rvfahh
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