More Inflation Data Due After Another Selloff

**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 Lansford, and here is Schwab's Early Look at the Markets for Thursday, June 11th. Round two of this week's inflation double feature arrives before today's open, a day after consumer price index data, roughly matched expectations, that helped pair early losses in stocks before escalating tensions with Iran, rising oil prices and continued selling of chip stocks drove the major indexes sharply lower. The May producer price index, which tracks prices at the wholesale level, is expected to show monthly gains in the headline and core indexes of 0.7 percent and 0.4 percent, respectively, according to briefing.com. Core strips out food and energy. That would mark a slowdown from the increases reported for April, and stocks could suffer if the results top those estimates. Last month's PPI data showed inflationary pressures building upstream, and not only due to higher oil prices. PPI gains often lead to higher consumer prices in the months to follow as companies pass along costs. But the results could also be driven by front-loading of products, as wholesalers scramble to build supply ahead of expected price increases. This tends to raise demand and lead to higher prices. CPI data for May arrive mostly as expected yesterday. Headline prices rose 0.5% from the previous month, while Core CPI, which excludes energy and food, rose 0.2%.
Annual inflation came in at 4.2% with Core inflation rising 2.9% annually. The numbers reinforce expectations that the Federal Reserve will keep rates steady for the time being. Treasury yields retreated after the release. Inflation continues to be driven by energy prices, said Cooper Howard, Director of Fixed Income Research and Strategy at the Schwab Center for Financial Research. A bright spot, if you can call it that, when year-over-year inflation is above 4 percent, is that it wasn't a surprise to the upside, Howard said. WTI light sweet crude oil rose more than 3 percent after President Trump said the US was preparing new attacks on Iran. CPI data also showed that inflation is now outpacing wage gains, which could affect economic growth ahead. The Atlanta Fed's GDP Now estimate for second-quarter gross domestic product growth is 3.3 percent, down from 3.8 percent a month ago. Inflation and jobs data from the past week will give the Fed plenty to consider when it meets next week and formulates its mid-year view of the economy, including projections for interest rates and economic growth. As of Wednesday afternoon, the futures market was pricing in 67 percent chances of at least one quarter-point rate cut by year-end, according to the CME's FedWatch tool. However, the market sees nearly a 100 percent chance that the Fed stays on pause next week. The Fed's last move was a rate cut in December.
Initial jobless claims due at 8:30 a.m. Eastern time today are another data point to watch. Analysts expect claims to total 222,000 down slightly from the prior week, but near the high end of recent reports according to briefing.com consensus.
Turning to the corporate world, Oracle lost more than 2% shortly after Wednesday's close despite reporting quarterly results that topped expectations. The company said it earned $2.11 per share versus expectations of $1.97 on revenue of $19.18 billion compared to estimates of $19.09 billion. Cloud and software revenue, though, fell a bit short of expectations. Oracle said it planned to add $20 billion to its capital raising, bringing the total for fiscal 2027 to $40 billion through debt and equity financing. More earnings arrive after today's close. Both software giant Adobe and home builder Lennar report. When Adobe reported in March, shares plunged by double digits, even though the design software maker topped expectations for both earnings and revenue. The company's guidance then was near analysts' expectations, but market participants may have been hoping for even better growth amid rising worries over AI competition. The company told investors then that it's infusing AI into its existing products and that it's leading to new revenue streams, CNBC reported.
Treasury yields mostly rose, particularly at the longer end. A 10-year Treasury Note auction Wednesday drew above average demand. The 10-year yield hit 4.54 percent. The European Central Bank's, or ECB's, rate decision this morning is the next mile marker for the Treasury market. Analysts expect the ECB to raise rates as it continues to fight energy-driven inflation, Reuters reported. Shifts in European interest rate expectations can potentially impact US bond yields because global fixed-income markets are closely interconnected. The Bank of Japan meets next week with a rate decision expected early Tuesday US time. Analysts polled by Reuters expect the Bank of Japan to raise its key interest rate to 1 percent as inflation approaches the Bank of Japan's 2 percent target and supply shortages hit the economy.