June 12 – Boeing shares fell sharply after an Air India 787-8 Dreamliner crashed minutes after takeoff with 242 people aboard. That combined with ongoing tariff and geopolitical tensions to weigh on stocks this morning. The VIX is trading near 18, while the dollar index is trading near 97.9 after marking a fresh three-year low on the global currency market. That in turn provided a modest tailwind for the broader commodity sector. Yields on 10-year Treasuries are trading near 4.37% following more favorable inflation data this morning, while yields on 2-year Treasuries are trading near 3.90%. Crude oil prices are 1% lower at this hour, after surging to fresh two-month highs earlier in the session on rising Middle East tensions. The grain and oilseed markets are mostly higher this morning, ahead of USDA’s WASDE crop report at midday, and in anticipation that we could hear from the Environmental Protection Agency regarding its biofuel blending requirements today. The WASDE report is expected to be a quiet one, but that leaves the market susceptible to surprises. On the other hand, we could see more significant fireworks in the soyoil, soybean, and / or corn markets from the EPA’s biofuel announcement, if it is released today.
The headline producer price index rose just 0.1% on the month in May, falling short of analyst expectations that tariffs would push it up by 0.2%, although that is higher than the upwardly revised -0.2% posted for April. The headline PPI rose 2.6% year-on-year in May, matching analyst expectations, although up from 2.4% in April. The core PPI that excludes the more volatile food and energy components also rose by 0.1% in May, falling short of analyst expectations of a 0.3% rise, but again higher than the -0.2% posted in April. The core PPI rose 3.0% year-on-year in May, below analyst expectations that it would hold steady at 3.1%. Good inflation at the producer level rose 0.2% on the month and 1.3% on the year, up from flat and 0.5% respectively in April. Services inflation at the producer level rose 0.1% on the month and 3.2% on the year, versus -0.7% and 3.3% respectively in April. Overall, today’s PPI report parallels yesterday’s consumer inflation data – coming in cooler than feared amid the tariff battle.
First-time claims for unemployment benefits rose to 248K in the week ending June 7, essentially unchanged from the 247 recorded the previous week, but up from analyst expectations of 243K. The four-week moving average rose to 240.25K claims, up from 235K the previous week. Continuing claims for the week ending May 31 rose another 54K to 1.956 million, which is its highest level since November 13, 2021. The four-week moving average rose 19,750 to 1.914 million. These numbers do show some softening of the jobs market – again communicating to Wall Street that the Federal Reserve has a bit more runway now to cut interest rates later this year. Initial claims for benefits from former Federal civilian employees totaled 561 in the week ending May 31, up 23 from the previous week. Continuing claims for former Federal civilian employees in the week ending May 24 totaled 6,315, down 404 from the previous week.
Stocks slipped lower in China today on a lack of confirmation on whether President Xi Jinping has signed off on the trade agreement framework achieved in London with U.S. negotiators yesterday morning. Many of the specifics of the agreement remain unknown as well. President Trump stated that the agreement required China to release rare earth minerals and magnets to the U.S. auto industry upfront – keeping U.S. car production lines moving. However, it’s also now being reported by some industry sources that China only agreed to provide the rare earth minerals for six months. This suggests that China wants to keep the rare earth mineral dependency that the rest of the world has on it as a bargaining chip going forward. Those rare earth minerals are available in many parts of the world, but much of the world has chosen not to deal with the environmental risks and costs of mining and processing them, leaving that to China. That now leaves the world dependent on China, which some sources suggest controls 97% of the supply of these products essential for electronics – including everything from cars to military weapons. Other sources say that China produces 60% of the world’s rare earth minerals, while processing 85% of them.
Keep your eyes on the Middle East, where Iran is getting closer to nuclear weapon capability. The International Atomic Energy Agency reported last week that Iran has enough uranium enriched to 60% purity – near weapons grade – to potentially produce nine nuclear bombs. It has consistently verbalized a commitment to destroy Israel, while shouting “Death to America.” Israel has given indications that it cannot allow Iran the capability of having a nuclear warhead, and President Trump has stated similar comments. Iran says that it was tipped off by another regional country that an attack on it may be imminent. The United States has reportedly started removing nonessential personnel from its bases in the Middle East. Iran stated Wednesday that it would target those bases if conflict between the two countries over Iran’s nuclear program occurs. Tensions are on the rise in the region, raising risks for energy and fertilizer supplies coming from the Middle East.
