May 15 – Stock futures pulled back overnight as inflation anxiety increases a bit after the major stock indices reached their highest levels since before the major tariffs were announced. The VIX is trading near 19 this morning, while the dollar index is trading near 100.7. Yields on 10-year Treasuries are trading near 4.49%, while yields on 2-year Treasuries are trading near 3.98%. The majority of earnings reports beat expectations, and the inflation data thus far is moving in the right direction, including this morning’s data, but many earnings reports mentioned the inflation risk going forward, making it increasingly a topic of conversation when stocks are trading at these elevated levels. Crude oil prices are 2.5% lower on sluggish demand fears combined with expectations of a US-Iran nuclear deal that could allow that country’s oil to flow again. The grain and oilseed complex was mixed overnight. It was interesting to note that container orders for shipping goods from China to the United States are up 300% after the tariff pause announced between China and the United States over the weekend.
The producer price index fell 0.5% month-on-month in April as energy prices fell sharply on tariff fears, down from expectations of a 0.2% rise. However, the March number was revised to 0.0% change on the month, which was an improvement from the -0.4% originally reported. The headline PPI rose 2.4% year-on-year in April, which matched analyst expectations, while being down from 2.7% in March. The core PPI that excludes the more volatile food and energy sectors also fell 0.4% in April, compared to analyst expectations of a 0.3% rise. The March number was revised to +0.4% on the month, up from the -0.1% originally reported. The core PPI rose 3.1% year-on-year in March, beating analyst expectations of 3.0%, but down from 3.3% the previous month. The PPI for goods was flat on the month in April, after falling by 0.9% the previous month. The goods PPI was up 0.5% on the year, down from 0.9% the previous month. The PPI for services fell 0.7% on the month, after rising 0.4% the previous month. The services PPI was up 3.3% on the year in April, which was down from 3.6% the previous month. What this means is that we’re seeing quite a bit more inflation pressure in the services sector currently than we are in the goods sector where much of the attention has been focused. For the most part, the tariffs are applied to goods and not to services to this point.
Retail sales rose by 0.1% on the month in April, matching analyst expectations, but down from an upwardly revised 1.7% growth the previous month. Retail sales excluding vehicles also rose by 0.1% on the month in April, but that fell short of analyst expectations of 0.3% growth, and it was down from an upwardly revised 0.8% growth the previous month. Retail sales excluding vehicles and gas rose by 0.2% on the month, down from 1.1% the previous month. Rapidly falling energy prices weighed on these retail sales numbers, but that didn’t account for all of the slowdown in retail sales. We still saw positive growth in retail sales in April, but declining consumer sentiment certainly sobered their buying habits while they wait for greater clarity on the tariff war.
First-time claims for unemployment benefits were unchanged at 229K in the week ending May 10, matching analyst expectations. The four-week moving average rose modestly to 230.5K claims, up from 227.25K the previous week. Continuing claims for the week ending May 3 rose by 9K to 1.881 million, with the four-week moving average rising by a mere 750 to 1.874 million. Initial claims for unemployment benefits from former federal civilian employees totaled 438 in the week ending May 3, down 30 from the prior week. Continuing claims for benefits in the week ending April 26 fell by 145 to 6,571. There’s still not anything overly concerning in the weekly jobless claim data.
The Philadelphia Fed manufacturing index came in at -4.0 in May, above expectations of -10, and well above the -26.4 posted in April. Yet, it still reflected modest contraction with a reading below zero. The new orders index turned positive in May, while the shipment index remained negative, declining a bit further on the month. The employment index rose from its near-zero reading last month. Both the prices paid and prices charged indices remained elevated. Expectations of growth over the next six months were more widespread. The Empire State manufacturing index came in at -9.2 for May, down modestly from analyst expectations of -7.5, and down slightly from -8.1 in April, but negative nonetheless. Both new orders and shipments rose this month, while delivery times held steady, and supply availability declined. Inventories edged higher, while employment declined. Input prices continued to rise, while selling price increases slowed. Firms in the New York Fed District were more pessimistic about the outlook than those in the Philadelphia region.
Soyoil and soybean prices declined overnight after it was reported that the U.S. Environmental Protection Agency sent its Renewable Volume Obligations (RVO) recommendations to the White House’s Office of Management and Budget for evaluation. The industry had previously requested that the biomass diesel production mandate be raised to 5.25 billion gallons, up from 3.35 billion gallons currently. We felt that it would likely come in closer to 4.4 – 4.6 billion gallons, with a chance that it could approach 5 billion. Traders reacted negatively to rumors that the EPA recommended something closer to 4.6 billion gallons, but all of this is currently just unconfirmed speculation.
