U.S. consumer price index for May was 0.1%, below estimates of 0.2%. After removing a 1.0% reading from a year ago, the YoY level went from 4.9% to 4.0%. The YoY inflation rate could drop below 3% (to 1.3%, for example) once one more major number drops out of the equation next month. The problem with the data is that despite a 0.4% increase, the core measure still remained excessive at 5.3%. That’s the third straight increase of 0.4%, and the total increase over the past five months is 2.1%, which is above the 2% goal. Absent negative data in the future, it seems unlikely that core inflation will drop below 2% for some time.
After dropping to 0.4% the previous month, the lack of a safe place to live rose to 0.6% this month. Other factors demonstrated:
- In May, the Food Index rose by 0.2%, a small uptick after two months of flat growth. In the past year, the index has increased by 6.7%.
- After falling for two months in a row, the Food at home indicator saw a 0.1% improvement in May. The growth rate was 5.8% each year.
- Similar to April, the Food away from home index grew by 0.5%, for an annual gain of 8.3%.
- After a small uptick in April, the Energy index fell sharply by 3.6% in May. The index has dropped by 11.7% in the past year.
- Energy commodities (-5.6%) and gasoline (-5.6%) both saw significant drops in May following rises in April. Annual declines of -20.4% and -19.7% were similarly considerable.
- Similar to April, used vehicle sales increased dramatically in May (4.4%), bringing the yearly decline to -4.2%.
- In May, the Shelter index increased by 0.6%, and it has increased by 8.0% annually.
- After dropping in April, the Transportation services index bounced back in May, rising by 0.8%, with a noteworthy annual growth of 10.2%.
If we look at the data, we can see that things could have been far worse. Large energy savings in 2023 have more than offset the benefits of the previous year. However, the prices of necessities like food (13.4 percent of the CPI) and housing (34.2 percent of the CPI) remain stubbornly high. With housing costs increasing by 8.0% year over year, and food prices rising by 6.7%, reaching inflation of 2% will be difficult (barring future negative readings).
US rates fell when the news was released, but they recovered and went higher despite the fact that the data is widely expected to ensure a “skip” at the Fed’s meeting tomorrow. A look at the numbers reveals:
- Up 7.8 basis points, the yield on the 2-year note is now 4.6704 percent.
- yield on the five-year note 3.992 percent, up 7.7 basis points
- Yield on the 10-year Treasury note is 3.925%, up 5.4 basis points.
- Thirty-year yield 3.924%, +2.2 bps
For the first time in a very long time, the yield on 5-year government bonds has risen above the level of year-over-year inflation, reaching a new high of 4.025%. Demand from overseas bidders was high when the US Treasury auctioned approximately $18 billion in 30-year notes.
After a long day of trading, the British pound has proven to be the most successful of the major currencies against the Japanese yen. Despite the rise in rates, the US dollar was lower.
Major currencies from most stable to least stable
Following stronger employment and pay data, the pound appreciated.
- A decline of 135k in April was changed to a gain of 7k in May when it comes to payrolls.
- In April, the International Labor Organization stated that the unemployment rate had dropped to 3.8% from 3.9% in March.
- The increase in employment in April was 250 thousand, which was significantly more than the 162,000 forecast and the 182,000 seen in March.
Regarding financial gain,
- Average weekly earnings increased by 6.5% in April, which was above the 6.1% (3m/y) increase that was forecasted and up from the 5.8% increase that was initially reported and then amended to a 6.1% increase.
- In April, regular pay was reported at 7.2%, which was above the median forecast of 6.9% (3m/y) and an increase from the previous 6.7%, which had been corrected to 6.8%.
The BOE meets next week, and the data suggests they will likely raise interest rates again then. Good news for the GBP/USD this month as the US Federal Reserve is expected to maintain its current policy.
Chips, AI-related concepts, and Tesla all played a role in propelling US stocks higher today.
For the thirteenth day in a row, Tesla’s stock price increased, reaching its highest point since September 30 (up $8.88, or 3.55%, to $258.71). Today’s trading somewhat closed a gap between $257.50 and $262.47.
In September/October 2022, Tesla begins to partially close the pricing gap.
Even Intel gained today, gaining 2.54% in the chip industry. With a $15.40 increase, or 3.9%, Nvidia’s market cap is once again approaching $1 trillion.
Here is a quick look at the final prices:
- Dow up 0.43%
- S&P up 0.69%
- The Nasdaq gained 0.83 percent.
Four weeks in a row, the S&P has seen gains. The Nasdaq is currently in the midst of its eighth straight week of gains.
