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U.S. indexes red: Dow leads losses, Nasdaq just below flat
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Real estate weakest S&P 500 sector; comm svcs biggest
gainer
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Euro STOXX 600 index down 0.08%
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Dollar rises; gold dips, crude, bitcoin fall
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U.S. 10-Year Treasury yield slides to ~3.38%
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THURSDAY DATA SAYS FED PAUSE: PPI, JOBLESS CLAIMS (1128 EDT/1528 GMT) Investors on Thursday were confronted with two fresh pieces of evidence from the Labor Department that the Federal Reserve's policy tightening is casting its intended dampening spell on the U.S. economy.
Producer Prices (PPI) , which measures the prices U.S. companies get for their goods and services at the figurative factory door, showed price growth cooled more than expected in April. The headline "final demand" numbers, which refer to business-to-consumer prices, rose by 0.2% from March and by 2.3% from a year ago. Both readings mark a significant cool down and landed below consensus. Stripping out food, energy and trade services, so-called "core" PPI heated up a tad on a monthly basis - to 0.2% from 0.1% - but shed an encouraging 0.3 percentage point to 3.4% year-on-year. This is welcome news, coming on the heels of Wednesday's on-the-money CPI report. "For the second day in a row we have good inflation data – both the CPI and PPI continue to come down – which should give the Fed the room it needs to take a pause at the next meeting," writes Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. Digging deeper, PPI intermediate demand - which refers to business-to-business prices - showed hotter monthly price growth. Processed goods, which would include refined crude products like gasoline, actually decreased by 0.4%, but raw material prices jumped 1.7%.
Excluding food and energy, intermediate demand PPI jumped 1.8% from March and business-to-business services rose 0.7%. Here's the state of play regarding four major U.S. indicators and where they sit relative to the Fed's average annual 2% inflation target.
So far, in April, three have reported. Only hourly wages
gained heat. Two out of three ain't bad:
Next, the number of U.S. workers filling out fresh
applications for unemployment checks rose by 9.1%
last week to 264,000, well to the north of the 245,000 consensus
and the highest reading since October 2021.
As a rule, a longer line outside the jobless claims office
is hardly a reason to rejoice. But the tight labor market - as
evidenced by historically low unemployment and a recent NFIB
survey showing the difficulty of finding workers as their most
pressing problem - has put upward pressure on wage inflation, a
major inflation driver.
The report offers a sign that the growing list of
high-profile layoff announcements - particularly from the tech
sector - along with ongoing strife in U.S. regional banks, could
at last be causing cracks to appear in the jobs market.
And again, as with everything else these days, it's all
about the Fed.
"The latest jobless claims data are consistent with
loosening labor market conditions," says Nancy Vanden Houten,
lead U.S. economist at Oxford Economics. "Evidence of cooling
demand for labor will allow the FOMC to refrain from raising
rates at the June meeting."
Ongoing claims , reported on a one-week lag,
rose by 12,000 to 1.813 million, inching further above the 1.7
million pre-pandemic level.
(Stephen Culp)
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U.S. NET INTEREST COSTS RISE AS DEBT CEILING DEBATE DRAGS ON
(1104 EDT/1504 GMT)
As U.S. Congress wrangles over raising the country’s debt
limit the U.S. Treasury Department on Wednesday released its
latest Treasury Statement for April, which shows the cost of
carrying the rapidly increasing debt load.
The Treasury paid $62 billion in net interest costs in
April, which was its third largest expense after social security
and heath, which cost $115 billion and $63 billion,
respectively.
That comes in above national defense, which was responsible
for $58 billion in outlays during the month, and income
security, which cost $54 billion.
For the fiscal year to date, the Treasury has paid $364
billion in net interest, up from $255 billion in the comparable
period for the prior fiscal year. That comes as the Federal
Reserve hikes interest rates in an effort to reign in inflation.
U.S. Treasury Secretary Janet Yellen on Thursday urged
Congress to raise the $31.4 trillion federal debt limit, saying
that a default that would trigger a global economic downturn and
risk undermining U.S. global economic leadership.
(Karen Brettell)
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STOCKS RED: DATA, EARNINGS, BANKS DRAG (1021 EDT/1421 GMT) Wall Street's major indexes are lower early on Thursday as investors digest weaker than expected economic data and declines in large-cap companies such as Microsoft and Walt Disney Co are definitely not helping. While strategists welcomed weaker than expected data as a sign of easing inflation, which could give the Federal Reserve the leeway to pause rate hikes, still it didn't put the market in a good mood.
The S&P 500's biggest drag from a single stock is coming from Microsoft , which was down 1.2%. Another big drag is from Disney which is tumbling 9.0% after it reported shedding subscribers while it reduced its loss from its streaming business and reported quarterly earnings that met Wall Street's estimates. The S&P 500 energy sector is the weakest industry group out of 11 as oil prices fall. Communication services is the strongest sector as the drag from Disney is being countered by a sharp rally in Google parent Alphabet , which is up 5.0%. And the latest news in the banking sector may have dampened enthusiasm for the beleaguered group. The U.S. Federal Deposit Insurance Corporation's (FDIC) said on Thursday that around 113 of the country's largest lenders will bear the cost of replenishing the $16 billion hit to the agency's deposit insurance fund caused by recent bank failures. Regionals are underperforming with the KBW regional banking index down 1.97% vs a 1.3% S&P 500 bank sindex drop, which includes bigger banks and the biggest regionals. Embattled Pacwest Bancorp is down 18.3% at $4.97 Here is your morning snapshot at 1021 EDT:
(Sinéad Carew)
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U.S. STOCK FUTURES LITTLE CHANGED AFTER DATA (0900 EDT/1300 GMT) U.S. equity index futures are little changed in the wake of the release of the latest data on U.S. jobless claims and inflation. Initial jobless claims were greater than expected. The April PPI, on a month-over-month, and year-over-year basis came in below estimates. The month-over-month ex-food/energy print was in-line with the Reuters Poll, while on a year-over-year basis it was below the estimate:
According to the CME's FedWatch Tool, the probability that the FOMC will leave rates unchanged at their June 13-14 meeting is now 97% from 96% just before the numbers were released. There is now around a 3% chance of a 25 basis point rate increase vs 4% prior to the data coming out. The probability of a 25 basis point cut at the July meeting is now 47% from 39% before the numbers came out. CME e-mini S&P 500 futures are edging down vs roughly flat in the moments before the numbers came out.
A majority of S&P 500 sector SPDR ETFs are lower in premarket trade, but changes are relatively modest. Energy is taking the biggest hit, off about 0.8%, while communication services is leading gainers with a 0.25% rise. Meanwhile, with PacWest Bancorp sliding ahead of the open, the SPDR S&P regional banking ETF is quoted down more than 1.5%. Paul Hickey co-founder at Bespoke Investment Group was out with a quick reaction to the mornings data: "Investors can debate over whether or not the FOMC should be cutting rates later this year, but given the continued weaker trend of data and stress in the banking sector, any continuation of rate hikes in June would be completely out of touch." Here is a premarket snapshot from shortly before 0900 EDT:
(Terence Gabriel, Sinéad Carew)
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)
