Inflation and job market cooling signs reappear! Is it too early for the Fed to speak hawkishly?

On Thursday, the U.S. producer price index (PPI) unexpectedly fell in May, once again proving that inflation is falling. At the same time, the initial jobless claims data exceeded expectations, indicating new signs of weakness in the job market. This seemed to counter the Federal Reserve's hawkish stance earlier on Thursday.

The monthly rate of PPI in the United States in May was -0.2%, lower than the expected 0.1%, and a sharp drop from the previous value of 0.5%, the largest drop since October 2023. From a year-on-year perspective, PPI rose by 2.2% in May after rising by 2.3% in April, also lower than the expected 2.5%. The number of initial jobless claims in the United States for the week ending June 8 was 242,000, exceeding the expected 225,000, the highest since the week ending August 12, 2023.

After the release of initial claims and PPI data, U.S. Treasury yields fell, with the 2-year Treasury yield falling to 4.66%, the lowest level since April 5, and the 10-year yield falling 3 basis points to 4.266%. The U.S. dollar index fell nearly 30 points in the short term, and spot gold rose more than $10 in the short term, touching the $2,320 mark. Non-U.S. currencies rose across the board, with the euro rising nearly 30 points against the U.S. dollar in the short term, the pound rising nearly 40 points against the U.S. dollar in the short term, and the U.S. dollar falling more than 50 points against the yen in the short term.

Institutional analysis pointed out that the unexpected decline in the US PPI in May due to lower energy costs is another sign that inflation is falling after soaring in the first quarter. Previously, CPI data cooled across the board, boosting financial market hopes that the Federal Reserve will start cutting interest rates in September. The PPI data allows economists to be optimistic that the Federal Reserve will start cutting interest rates in September this year, cutting interest rates twice this year.

Thursday's Fed dot plot showed that they expect only one rate cut this year while waiting for further progress on inflation. Nevertheless, the market does not believe this expectation, and traders still retain the possibility of a rate cut by the Fed in mid-September.

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The article is forwarded from: Jinshi Data