Perspective: Mid-Day Commentary for May 16

By: Arlan Suderman, Chief Commodities Economist

Fri, 16 May 2025, 15:11

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

May 16 - Stocks are largely steady to mixed to close out the week, as investors prepare for the weekend after a week of solid gains on the 90-day tariff pause with China. The VIX is trading below 18, while the dollar index is trading near 101.1. Yields on 10-year Treasuries are trading near 4.44%, while yields on 2-year Treasuries are trading near 3.98%. Crude oil prices are nearly 1% higher, while the grain and oilseed sector is mixed to weaker. Soyoil prices are consolidating following yesterday's limit-down move, although they're still modestly lower on the day.

The consumer sentiment index, produced by the University of Michigan, dropped to 50.8 for May, down from 52.2 in April and down from 69.1 in May of last year. This month's decline is negative, but it's rather small compared to the steep declines of the previous four months. The index is down 26% since January as the tariff war has heated up. Sentiment improved slightly for independents this month, while Republicans saw another 7-point decline. The current economic conditions index fell to 57.6 this month, down from 59.8 in April, and down from 69.6 the previous year. The index of consumer expectations slipped to 46.5, down from 47.3 in April, and down 32% from the 68.8 posted a year ago. Three-fourths of the survey respondents spontaneously mentioned tariffs, up from nearly 60% in April. Consumers continue to be focused on trade policy uncertainty.

The survey period for this report was April 22 to May 13, ending just two days after the major agreement reached between China and the United States to enter a 90-day tariff pause, which resulted in a surge in the stock market. Many of the survey measures showed signs of improvement after that announcement, but the initial response was too small to alter the overall picture from the survey responses already collected previously. That illustrates though how sensitive consumer sentiment can be to developing headlines. Renewed deterioration could put further downward pressure on consumer sentiment, creating a self-fulfilling recession, while a series of announced trade deals could quickly reverse sentiment in a positive direction. Closely related to that is inflation expectations. Survey respondents pegged year-ahead inflation at 7.3%, up from 6.5% the previous month. Long-run inflation expectations rose to 4.6%, up from 4.4% previously. Today's report provides the initial data analysis from the survey. The final release for May will do a better job of revealing the extent to which the announced China tariff pause could impact future consumer expectations.

The debate over the inflation impact of the Trump tariffs continues. Obviously, imposing a tax on something raises the cost of it. Various participants along the supply chain have an incentive to absorb a portion of the cost of the tariff in order to maintain market share, although that also hurts their bottom line. In the end, the cost gets shared by various parties along the line stretching from the producer to the consumer, and everyone in-between. Retailers have been warning of coming inflation, while the same is true of the various manufacturing surveys that are released monthly. It takes time for inflation impacts to show up in the hard data, but thus far the consumer price index and producer price index data are not showing it. Data released today showed that import prices rose by just 0.1% on the month in April, while rising 0.1% year-on-year as well. Similarly, export prices rose 0.1% on the month, while they were up 2.0% on the year, down from 2.4% previously.

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