Written Commentary
STOCK INDEX FUTURES
Index futures initially jumped at the much softer-than-expected PPI inflation data, which saw a monthly contraction of 0.5% vs. an expected rise of 0.2% for the month of April.
Monthly retail sales grew 0.1% vs expectations of 0.0%, while yearly retail sales saw 5.2% growth, matching the previous yearly figure. While the data did beat expectations, monthly retail sales were down over 1.5%, a sharp downturn from the previous month’s figure of 1.7% growth. Economists were expecting a downturn in retail sales following the large increase in March as consumers spent heavily on goods in anticipation of rising prices from tariffs.
Weekly jobless claims were unchanged at 229,000, slightly more than expected but still indicating that any layoffs due to expected economic slowdowns from tariffs remain at bay.
CURRENCY FUTURES
The June US dollar index weakened following the weaker-than-expected inflation data and declining retail sales.
The dollar has weakened against several Asian currencies like the Taiwan dollar and more recently, the South Korean won. The weakness comes amid speculation that the Trump administration is advocating for a weaker dollar as a part of ongoing trade negotiations. The administration has argued that the dollar’s strength against weak Asian currencies has put US exporters at a disadvantage. Ongoing trade deals with Asian countries could lead to further dollar weakening.
British pound futures are higher after stronger-than-expected GDP growth figures were released. The year-ending Q1 saw a 1.3% growth in GDP compared to estimates of 1.2% and saw a quarterly growth of 0.7% vs. an expected 0.6%. The growth figures could scale back expectations for how much the Bank of England will lower its benchmark rate this year. Despite the strong readings, the growth is expected to be short-lived due to rising unemployment and the impact of tariffs. June pound futures are currently trading around $1.327.
Euro futures edged higher, mainly due to a weaker dollar after Eurozone’s Q1 GDP growth was revised down to 0.3% from 0.4%. The revised number is due to Slovenia’s economy contracting, where Eurostat previously did not have an estimate. Industrial production saw a 2.6% growth, beating estimates of 1.9%, thanks to increased output from factories in Germany and Ireland, as US importers raced to get goods into the country before tariffs hit. Despite the increase in production, it is expected to be short-lived as US warehouses are somewhat full, and tariffs are likely to impact economic growth for the region. June Euro futures are trading just above $1.12.
Australia’s unemployment rate remained at 4.1%, coming in line with expectations as monthly employment numbers for April came in hotter than expected adding 89,000 jobs vs. an expected 21,000. The strong jobs data may curb steeper rate cuts from the Reserve Bank of Australia, which is set to meet next week. Inflation in the country is in line with the central bank’s 2%-3% target range.
Japanese yen futures are higher, mainly due to a weaker dollar. GDP figures will be released at 6:50 p.m. Thursday, and industrial production at 11:30 p.m. Central Time.
INTEREST RATE MARKET FUTURES
Treasury futures rose on the inflation and sales data, which saw producer prices contract a half percent and a sharp decline in consumer spending. Fed Chair Jerome Powell in a speech Thursday morning said he expects the US to be entering a period of more frequent supply shocks and volatile inflation.
Fed Vice Chair Philip Jefferson in a speech Wednesday noted that there is still much uncertainty surrounding the future of inflation. He mentioned that if the increase in tariffs is sustained, they are likely to generate a rise in temporary inflation, while economic sentiment among businesses and households has declined. Jefferson also noted that he expects economic growth to slow but still remain positive. The economic data and comments from Powell and Jefferson seem to support the Fed’s wait-and-see approach to monetary policy.
The 10-year yield is below 4.48%, and the spread between the two- and 10-year yields increased to 49 bps.
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