Peace Hopes, Sentiment Data Could Set Early Tone

**Collette Eau Claire** (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 Collette Eau Claire, and here is Schwab's early look at the markets for Friday, June 12th. Wall Street remains on tenterhooks approaching the weekend amid conflicting reports of progress ending the war. The markets jumped late Thursday when a post by President Trump that the agreement was close. Both Israel and Iran denied that with an hour left in the session. Middle East intrigue and uncertainty keep calling the shots day to day. That's true for crude oil and treasury notes as well as equities. Both yields and oil fell significantly Thursday, though shorter term yields more sensitive to Federal Reserve rate policy fell less than longer term yields. Late yesterday, media reports said an agreement in principle was reached between Iran and the US., but Iran's supreme leader has yet to approve it. Shares of the Elon Musk-helmed SpaceX are anticipated to go public today. The IPO is priced at $135 per share and seeks to raise $75 billion through the sale of 555.56 million shares. If accomplished, it would value the company at $1.77 trillion and make it the biggest IPO ever, not to mention one of the 10 most valuable companies in the US overall. In addition to its space technology arm that includes Starlink satellite internet, the SpaceX universe is home to XAI, parent of X, formerly Twitter and Grok. Investors should know it can take several hours after market open until the new listing begins trading, and early trading can be volatile. Otherwise, today is light on earnings and data, but does bring a look at preliminary June University of Michigan consumer sentiment. This metric has hit a series of all-time lows in recent months, but consensus expects a rebound to 46 from 44.8 last month. One thing to track in the report other than the headlines is inflation expectations. Long run is what the Fed tracks most closely, and it rose to 3.9% in May from 3.5% in April.
Next week features rate meetings from both the Federal Reserve and the Bank of Japan or BOJ. The Fed is widely expected to keep rates paused at the first meeting for the new Chairman Kevin Warsh. The BOJ appears likely to hike, according to a Reuters poll of analysts. Earnings action hits a summer lull next week, with few companies of consequence on the calendar. Often an earnings pause can mean intensified market focus on outside events, particularly geopolitics.
Looking back at yesterday's data, the May Producer Price Index, or PPI, which tracks prices at the wholesale level, surged in some ways more aggressively than Wall Street had expected. Headline PPI climbed 1.1% and Core, excluding food and energy, rose 0.4%. Consensus was for 0.7% and 0.4%, respectively. Annual PPI also topped Wall Street's thinking at 6.5%. Consensus was 6.4%. All told, wholesale prices are now rising at their fastest pace since late 2022
Annual May Core PPI was 4.9%, the low analyst's average estimate of 5.4%. More concerning, components of PPI that map over to the May personal consumption expenditures are PCE Price Report, the Federal Reserve's favorite inflation meter, suggest a firm print. Only the air transport component declined. A deeper look at PPI, excluding food, energy and trade, showed a 0.8% monthly increase in May. In the history of this series, there have only been three months with stronger gains, said Kevin Gordon, head of Macro Research and Strategy at the Schwab Center for Financial Research, or SCIFR. This followed Wednesday's May Consumer Price Index, or CPI, that came in mostly as expected, but still elevated well above Federal Reserve goals. One thing tempering worry is hope that an end to the war can clip oil prices, which might mean inflation loses some of its grip. Initial jobless claims, meanwhile, have been creeping up. They reached 229,000 last week, the government said Thursday, of three-month high and up from 225,000 the prior week. Software giant Adobe reported after the close Thursday and topped consensus. Its guidance also topped the fact-set average estimates, but shares slipped 6% initially in post-market trading. Lately, tech firms haven't been able to impress investors with their results. Home builder Lennar also unveiled quarterly results. More housing data is due next week, with May housing starts and building permits after a stronger-than-expected existing home sales report earlier this week. Turning to crypto, Bitcoin's recent decline, one aspect of weaker sentiment among investors, also coincided with a steep drop in net accumulation by long-term holders. That cohort had been on a buying spree since March 1st, helping drive price about 25% higher over two months. But their net buying fell off a cliff last week, dropping by more than half as Bitcoin's price fell 17% over just five days.