Michael Reinking:
Hello. I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. We are recording on Thursday afternoon in what has been an exciting day here on the New York Stock Exchange, as we welcome Circle, the issuer of the USDC stablecoin to the NYSE community of listed companies. Now, the biggest catalyst of the week is Friday's employment report, and I'll get you up to speed on that in a moment. But first, let's discuss this week's Market Storylines.
Now, last Friday, we closed out the month of May with the S&P 500 up over 6%. Now, the international trade court decision, which we discussed at length last week, injected a new round of trade uncertainty. Now, for the second Friday in a row, President Trump took to Truth Social just ahead of the open, saying that China had fallen down on its Geneva commitments, with administration officials expressing concerns about the removal of rare earth mineral restrictions.
Now, on the other side, China expressed disappointment with the increased technology export restrictions coming from the US. Now, comments from Treasury Secretary Bessent suggesting a call between the two presidents would be needed to break the gridlock. And after much speculation, that call happened this morning. Now, at this point, we don't have a full readout of that meeting, but there seems to be an agreement to hold another round of talks in the near future, which has helped equities rally modestly today.
Now, the other main development as it relates to trade was the increase in steel and aluminum tariffs to 50% after the close last Friday, which triggered a big rally in local steel producers. Now, the administration has also asked for best offers this week, and German Chancellor Merz was at the White House today, and USTR Greer suggested negotiations with the EU are progressing.
Now, moving from trade, this week has been mostly about economic data. Now, broadly speaking, the US economic data is pointing to a slowing of economic activity, which for readers of the NYSE MAC Desk commentary or listeners shouldn't come as a big surprise. We've spent a lot of time talking about the delineation of economic data before the institution of tariffs and what that might look like as we work through this period, we'd refer to as purgatory, as we wait to see where trade policy ends up, and then the ultimate impact after.
Now, the pull forward of demand ahead of tariffs was evident in Q4 and Q1 data, which ultimately needs to work through the system. Now, you can see evidence of that with this morning's trade deficit being cut in half in April. Now, we're starting to see data coming from that start of the purgatory time period. Businesses have started to pull back on investments and new orders until some of the uncertainty is resolved. Now, the data is pointing to a slowdown but is not pointing to a severe contraction.
Now, this week, both ISM manufacturing and services surveys came in below expectations, but neither is far below the demarcation line of growth. Now, this week's labor market data has also come in a bit weaker than expected. The ADP jobs report showed 37,000 jobs added to the economy driven by services. Now, notably, small businesses, which make up over 40% of private sector employees, cut 13,000 jobs.
Now, one thing to note, now, ADP hasn't necessarily been a good indicator of the BLS number, just look at the April data. But in general, directionally, they tend to send a similar signal. Now, this morning's initial claims ticked up to 247,000, though I note that dislocations and separations in the JOLTS jobs opening only ticked up slightly and remain historically low, and continuing claims are holding around 1.9 million.
So looking ahead to tomorrow's BLS report, consensus is looking for non-farm payrolls to increase by 130,000 jobs, down from last month's 177,000, with the unemployment rate expected to hold steady at 4.2%. Now, there does seem to be some downside risk to tomorrow's number, but unless it is a big miss, say sub 75,000, I'm not sure that that will necessarily shift the overarching Fed stance. But if a weaker number is coupled with poorer inflation report next week, that combination could potentially mark a turning point.
However, I still think the committee will be cautious wanting to see the impact of tariffs. Just this week, the New York Fed released the results of a survey taken in May, which showed that about 75% of companies are passing on at least some portion of the tariffs.
Now, treasuries rallied after the ADP report, but are giving back some of that today. Now, futures markets have started to increase the odds for rate cuts again, currently pricing in two to three by the end of the year, likely starting in the fall. Now, equity markets have taken the economic data in stride, trading slightly higher for the week and holding right around the mid-May high again. Now earlier today, the S&P 500 tested 6,000 and is back within 3% of its all-time high.
Now, looking ahead to next week, inflation data will be the key catalyst with CPI on Wednesday. Now, Treasury auctions are also going to come back into focus with a 10 and 30-year auctions on Wednesday and Thursday, and there continue to be a couple of late cycle tech reports, including Oracle, and there are multiple tech company events, including Apple's WWDC. Now, the contentious reconciliation process will also remain at the forefront.
That's going to do it for this week. Thanks for spending some time with us. If you like today's episode, please tell a friend or leave a comment wherever you listen to your podcasts. I'm Michael Reinking. Thanks for joining me. I'll talk to you again next week.
Speaker 2:
That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen, and follow us on X at Icehouse Podcast. From the New York Stock Exchange, we'll talk to you again next week inside the Icehouse.
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