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Stock Markets, Jobless Claims, and the Dollar Decline as the Fed Holds Steady

Weekly Update – June 12, 2020

  • Stocks pulled back across the globe, breaking a three-week string of gains. Prominent among the factors blamed for the weakness were concerns about the disconnect between the magnitude of the rally and the soft macroeconomic backdrop, signs of excess among some retail investors and an uptick in coronavirus infections, which weighed on the reopening narrative.
  • The Federal Open Market Committee’s cautious recovery outlook also was a dampening factor, as the FOMC anticipated substantial near- to medium term risks. The Committee left monetary policy unchanged, noting it expected to hold rates near zero through 2022. As a result, the yield on the benchmark ten-year U.S. Treasury note fell from 0.91% the prior week to 0.70%.
  • The U.S. dollar broke its recent course of decline to rise against a basket of major currencies. The Bloomberg Commodity index fell, as did oil futures; by contrast, gold futures gained.
  • The preliminary June University of Michigan consumer sentiment index came in at 78.9 versus the final May reading of 72.3; the current conditions and expectations components both gained. The increases were attributed to renewed employment gains, but the one-year outlook remained uncertain.
  • Initial jobless claims dropped to 1.54 million for the week ended June 6, versus 1.90 million the prior week. The largest increases occurred in Florida, California and Oklahoma; the largest decreases in New York, Michigan and Texas.
  • May headline PPI rose 0.4% versus April’s record 1.3% drop. Goods prices led the advance with meat up 40% and energy up 4.5%. Weak service prices pushed core PPI (ex-food and energy) down 0.1% following April’s 0.3% decline.
  • The Consumer Price Index (CPI) declined 0.1% after falling 0.8% in April, marking its first ever three-month decline. Year-over-year CPI rose 0.1%; core CPI rose 1.2% YoY.
  • The NFIB small business optimism index increased in May to 94.4 from April’s 90.9. Respondents were optimistic about future business conditions; more than half reported recent capital outlays.
  • German industrial production dropped a record 17.9% in April; capital-goods production fell 35% and automotive production dropped 74.6%.
  • China’s producer price index fell 3.7% in May YoY, whereas the consumer price index rose 2.4% YoY. Food prices were 10.6% higher, with pork prices up 81.7%.

CPWM Weekly Market Monitor (2020.06.12)

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