Inflation in Focus After Volatile Day for Stocks

**Keith Lansford** (0:05)
Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead.
I'm Keith Lanceford, and here is Schwab's early look at the markets for Wednesday, June 10th. Inflation data arrives this morning after another volatile session for stocks Tuesday, while the recent sell-off in chip stocks and flare-ups in the Middle East are keeping investors on edge. Inflation has gained some traction after oil prices jumped due to the war in Iran, forcing a rethink about future Federal Reserve interest rate moves. The market could see more selling pressure if inflation data for May exceeds expectations, particularly if the core reading indicates prices of everyday items and services arising along with gas prices. The first inflation data of the week comes this morning. The Consumer Price Index, or CPI, for May is due at 8:30 a.m. Eastern time. For CPI, analysts expect 0.5 percent headline growth month over month and 0.3 percent growth in core CPI, which excludes food and energy. Both would mark a slight deceleration from April's numbers. Headline CPI is seen up 4.3 percent year over year. PPI inflation data follows at 8:30 a.m. Eastern time tomorrow. The numbers for April showed that upstream price pressures and not just from higher oil prices are rising and could hit consumers in the months ahead. The PPI index for trade services for final demand rose at the fastest pace in more than a decade in April, indicating businesses were already starting to pass along price increases. In fact, more than a third of businesses surveyed by the National Federation of Independent Businesses, or NFIB, said they planned to raise prices over the next three months, the most since July of 2022, the NFIB said Tuesday. US small business optimism tracked by the NFIB fell to its lowest level since October of 2024, hurt by rising fuel costs. For tomorrow's PPI data, analysts expect monthly increases of 0.7% for headline PPI and 0.4% for core PPI, according to briefing.com. Though still elevated, those numbers would represent a slowdown from April's jumps of 1.4% and 1% respectively, perhaps due to US gasoline prices stabilizing in May.
Oil prices fell Tuesday, even as the US and Iran made headlines. President Donald Trump said the US must respond to an alleged Iranian attack on an Apache helicopter that was patrolling the Strait of Hormuz. WTI crude spiked briefly but closed about 3% lower. This week's inflation data and last week's better-than-expected jobs numbers will certainly inform the Federal Reserve's mid-year view of the economy ahead of its policy meeting next week, when it will issue interest rate and economic projections. As of Tuesday afternoon, the futures market was pricing in a 67% chance of a rate hike by year-end, according to the CME's FedWatch tool. However, no rate move is seen at next week's meeting. The Fed's last move was a rate cut in December. Initial jobless claims due at 8:30 a.m. Eastern time tomorrow are another data point to watch. Analysts expect claims to total 222,000 down slightly from the prior week but on the high end of recent reports, according to briefing.com consensus. While the labor market has stabilized, consumers are increasingly under strain and real wage growth has slipped into negative territory as inflation has picked up. Another negative reading of real wage growth in today's CPI data will signal further deterioration of consumer spending power, a bad sign for the economy especially when inflation may get worse before it gets better. The Preliminary University of Michigan Index of Consumer Sentiment for June will be released Friday. Consumer sentiment has hit a series of all-time lows in recent months but consensus expects a rebound to 46 from 44.8 last month.
In more upbeat news Tuesday, existing home sales exceeded expectations in May, rising 3.2 percent from a year earlier and reaching the highest level since December. The data likely reflected contracts signed in March and April. Corporate news is thin this week but picks up today with earnings from Oracle after the close. Capital spending plans are likely to take center stage as investors monitored demand following Broadcom's slightly disappointing guidance last week, which contributed to the chip sell-off on Friday and Tuesday. Oracle's capital expenditures are likely to rise 30 percent year-over-year, Barron said, citing Wall Street analysts. Last time, Oracle reported in March, the company's shares enjoyed an initial 9 percent rally, the sales and earnings beat expectations, and the company promised it didn't plan any new financing measures to fund its data center construction. Oracle, like other software stocks, enjoyed a spring surge before losing ground early this month. Looking ahead to tomorrow, software giant Adobe and the home builder Lennar report after the close. Lennar received a downgrade from Keef Bruyette to underperform yesterday, as the analysts cited the company's high exposure to entry-level customers who may be less economically comfortable.