June 17, 2024

Weekly Market Commentary June 10th to June 14th 2024

The Consumer Price Index (CPI) was flat in May, coming in below the consensus forecast of 0.3%. On an annualized basis, CPI edged lower by 0.1 percentage points to 3.3%. The softer CPI was largely due to a decline in gasoline prices, which fell 3.5% MoM. Core services prices rose a very subdued 0.2% MoM (the weakest monthly gain since December 2021) and are up 5.3% on an annualized basis. Higher shelter costs continue to drive services prices, as they climbed 0.4% MoM. We also saw insurance costs fall slightly for the first time this year. However, they remain up 20% from a year ago.

Markets have been awaiting the decision for rates which came in unchanged on Wednesday, as expected. The Fed Funds Rate remains steady at 5.25%-5.50% for the seventh straight month. Fed Chair Jerome Powell took a more cautious stance, reiterating at the post-meeting press conference that the central bank will not cut rates until it sees more data showing that inflation is cooling. While the data is reassuring, the Fed exhibited a more hawkish tone at the meeting, as of now markets are eyeing a September rate cut.

The Producer Price Index (PPI) was released on Thursday morning following CPI the day prior. PPI declined 0.2% for the month against expectations for a 0.1% increase. This was largely due to a 0.8% decline in final demand goods prices, which was the largest decline since October 2023. Excluding food, energy, and trade services, the PPI was unchanged, compared with expectations for a 0.3% gain. On an annualized basis, PPI rose 2.2%.

Despite the favorable inflation data, we also saw the number of Americans filing for jobless benefits jump to the highest level in 10 months. Nancy Vanden Houten, lead U.S. economist of Oxford Economics, suggests this trend to be consistent with a slower pace of hiring and fewer workers leaving their jobs.

Recent reports of lower inflation have increased the odds of a Fed Funds cut by year end, which has been beneficial to equity markets. The S&P 500 opened the week at 5,346, reached another all-time high of 5,433 on Thursday and declined slightly on Friday at 5,424, up 1.2% for the week.

In the U.S. Treasury market, rates declined across the board throughout the week on the heels of the favorable inflation data. The 2-Year U.S. Treasury closed the week at 4.69% down 19bp from the prior week, while the 10-Year U.S. Treasury closed at 4.20% down 26 bps from the prior week. The yield curve inversion increased as a result to -49bps, from -45bps in the prior week.

Key economic releases next week include Retail Sales, several housing reports, and the S&P Services and Manufacturing PMI’s for June.

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