Michael Reinking:
Hello, I'm Michael Reinking, senior market strategist at the New York Stock Exchange, and this is Market Storylines. Every week, we are here to keep you up to date on the key trends and events driving global markets. So as we record on Thursday afternoon, let's dive into this week's Market Storylines.
Now, as discussed in last week's episode, the disappointing ADP job survey raised some concern ahead of Friday's employment report. The headline non-farm payrolls came in slightly better than expected, with 139,000 jobs added to the economy, while the unemployment rate held steady at 4.2%. Now, this led to a relief rally helping the major indices end the day higher, with the S&P 500 closing out the week at 6,000, within 2% of its all-time high again. Now, the details of the report were slightly less encouraging and with negative revisions to the previous two months, totalling around 95,000 jobs. Now, as we've seen on multiple occasions in the past, the household survey was also much less positive, showing a decline of about 700,000 employed people, while the labor force participation rate moved lower. Now, overall, the jobs report continues to suggest there is some moderation in hiring, but is not suggesting a severe contraction in the labor market.
Now, as such, Treasury yields moved higher by over 10 basis points across the curve, reversing all of the post-ADP job survey move lower, with expectations for the first rate cut being pushed back out to the fall. Now, also on Friday we got an update on the most anticipated phone call since ET used Elliott's Speak and Spell to phone home. President Trump said he had come to an agreement with President Xi and that the two trade teams would meet on Monday in London, setting the stage for this week. Now, those meetings extended into Tuesday, with optimism building as officials gave some positive body language after day one. Now, after the marathon negotiations concluded, the two sides agreed to agree to the framework agreement that was agreed to a month ago in Geneva. So as you can tell, there was a lot of agreement, but the details of what was agreed to are still pretty scant. That being said, it does appear that China will address the biggest pain point, easing export restrictions on rare earths, for about six months.
Now, outside of the US, and China, once again throttling down the rhetoric, this week has been all about inflation data, with some expectation that the impact of tariffs could start to show up in the data, given the recent commentary from the business community. However, broadly, the data has come in better than expected. On Monday, the New York Fed's survey of consumer expectations showed pretty sharp declines in one and three-year inflation expectations. On Wednesday, headline and core CPI were both up 0.1% for the month, below estimates of 0.2% and 0.3% respectively. Now, food prices continue to move higher, despite egg prices falling nearly 3%. However, the rise in food was offset by sharp declines in energy prices. Now, the details within core were somewhat surprising, with apparel and autos both moving lower. And on the services side, transportation services also declined as airline prices fell again. But the shelter component remained steady at 0.3%. Now, after last month's decline, today's PPI picked up a bit, but was also better than expected.
Now, the inflation data, coupled with a tick up in initial and continuing claims, which hit a cycle high around 1.95 million this morning, has helped yields move lower this week. And since it's been a topic on so many of the recent episodes, this week's Treasury auctions, including this afternoon's 30-year auction, have been well-received. Now, for the week, Treasury yields are down over 10 basis points across the curve, retesting last week's lows. Now, all in all, the data was positive from a Fed perspective, though the annual numbers are still running ahead of their 2% target, but there is still some skepticism that prices won't start to move higher in the coming months. The data won't push the committee to move off its wait-and-see stance next week, but we could start to see them set the table for a fall hike, and by setting, I mean putting down the tablecloth to maybe put down some silverware and plates in July, should the data continue to cooperate.
Now, the committee is in the media blackout window this week, but that hasn't stopped President Trump from airing his disappointment with Chair Powell. He continues to call for central bank to cut rates, while repeatedly suggesting that he could replace or announce his successor soon, which brought back the idea of the shadow Fed, which was floated by Treasury Secretary Bessent at the end of last year, whereby the newly announced nominee could offer forward guidance which would run counter to Chair Powell's. This could be done in theory, but would come with its own complications, not the least of which would be raising the question of Fed independence. Now, equity markets have moved modestly higher throughout the week with the response to the seemingly positive news flow muted, given the recent rally. Now, increasing geopolitical risks are also tempering some of the enthusiasm, as concerns mount that Israel could take military action against Iran, which has sent oil and gasoline prices up nearly 5%. Now, broadly speaking, we are starting to see some signs that investors are looking for opportunities in areas of the market that have underperformed and trimming some of the recent winners.
Now, looking ahead to next week, the G7 meetings begin in Canada over the weekend, and there is some hope that there could be movement on the trade front. Retail sales on Tuesday will be the big piece of economic data during next week. Otherwise, central banks will be the main focus, with the BOJ rate decision on Monday evening. Now, the central bank is expected to leave rates unchanged, but investors will be listening closely to commentary about the recent rise in long-term yields. Now, this will be followed by the FOMC meeting on Wednesday. US markets are closed Thursday for Juneteenth, but Friday will be a big liquidity event, as it is triple witch expiration and the S&P quarterly index rebalances, which have consistently been some of the biggest volume days of the year.
That's going to do it for this week. Thanks for spending some time with us. If you liked today's episode, please tell a friend or leave a comment wherever you listen to your podcast. Michael Reinking, thanks for joining me, and 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 @icehousepodcast. From the New York Stock Exchange, we'll talk to you again next week, inside the ICE House. Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties expressed or implied as to the accuracy or completeness of the information, and do not sponsor, approve or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell a solicitation of an offer to buy any security or a recommendation of any security or trading practice. Some portions of the preceding conversation may have been edited for the purpose of length or clarity.