Consecutive Light Inflation Prints Drive Stock Recovery, Treasury Rally: June 12, 2025

Stocks are recovering from yesterday afternoon’s bearish reversal and from early pre-market selling tension on back-to-back cooler-than-expected inflation reports. Today’s light PPI arrives on the heels of Wednesday’s CPI miss, and is bolstering confidence that charge forces are contained, widening the path for a Fed cut or two this year. But also adding to the case for monetary policy accommodation was the highest number of continuing unemployment claims in almost four years, signaling extended difficulty for idle individuals to find work on a relative basis. However, the weekly jobless filings report, overall, is still supportive of strengthening activity ahead, as the levels so far aren’t consistent with imminent consumer spending stress. In fact, it’s the firms that are worried about not having enough employees, prompting President Trump to dial down his deportation efforts due to executives in the agriculture, construction, leisure and hospitality businesses complaining of losing numerous experienced workers who are absolutely irreplaceable.

On the trade front, there’s some confusion regarding the deal between Beijing and Washington just as the Commander in Chief has announced plans to set unilateral tariffs in the next few days. Investors are taking their cue from the economic calendar, though, and are picking up equities in most sectors, Treasuries with a long-end bias, commodity futures ex crude oil and forecast contracts, which climbed to a year-to-date trading volume record just short of 400k yesterday. Meanwhile, the yield curve is shifting in bull-flattening fashion, unlike the lower rates amidst steepening action seen yesterday. Indeed, the key difference is that while this morning’s PPI dampened price pressure expectations, heightening rate reduction odds, the employment situation weighed on growth projections, an ingredient that was absent on June 11. Elsewhere, folks are reducing exposures to the greenback on narrower sovereign borrowing cost differentials and bitcoin is experiencing fading interest.

Producer Price Increases Are Contained

Wholesale price pressures were tame last month across major categories, adding to evidence of a lack of tariff-sparked inflation so far. May’s Producer Price Index (PPI) rose just 0.1% month over month (m/m), missing the 0.2% median estimate but picking up slightly from April’s 0.2% decline. From an annualized perspective, costs increased 2.6% year over year (y/y), in-line with projections and modestly higher than the 2.5% from the prior period. The core version of the gauge, which excludes food and energy due to their volatile characteristics, advanced 0.1% m/m and 3.0% y/y, softer than the 0.3% and 3.1% expected, and compares to the previous interval’s -0.2% and 3.2% figures. Looking under the hood, overall goods, core products and services as a whole saw charges climb only 0.2%, 0.2% and 0.1%. More specifically, trade services and food expanded 0.4% and 0.1%, energy and other services were unchanged, and transportation/warehousing services experienced deflation of -0.2%.    

Continuing Claims Hit Nearly Four-Year High

Continuing claims climbed to their highest level in almost four years, or since November 2021, signaling some labor market deceleration. For the week ended May 31, filings rose to 1.956 million, ahead of the 1.910 million projection and the 1.902 million from the prior period. But initial claims remained at the same 248,000 figure for the 7-day interval concluding June 7, exceeding the 240,000 median estimate. Four-week moving averages marched north on both fronts, from 235,250 and 1.895 million to 240,250 and 1.915 million.

Consumer Sentiment Expected to Climb

All eyes will be on UMich’s consumer sentiment figures tomorrow morning and the associated clues for future household spending. Reduced anxiety regarding trade tensions and the recent rally in stocks are likely to produce an upside beat in my view folks as the consensus projection is at just 53.5. Furthermore, those lighter worries are probably going to dampen the inflation expectation aspect of the publication, which can especially extend the momentum we’ve seen in Treasuries in the past several sessions. Finally, I’m expecting a few cross-border commerce deals to close near the timing of a rate reduction from the Fed and the one-two punch is supportive of a firmer employment market in incoming quarters. But what happens with the volatile immigration situation is also an important factor, considering that the nation is coming on a decade of maintaining a labor shortage.

International Roundup

UK Economy Contracts on Export Frontrunning

The UK’s gross domestic product (GDP) contracted 0.3% m/m in April, which was worse than the estimate for a 0.1% decline and March’s 0.2% gain, according to the Office for National Statistics (ONS). Despite the m/m decline, GDP advanced 0.9% y/y following a 1.1% pace in March. April was the sharpest m/m decline since October 2023 with activity hindered by the end of a tax holiday on real estate purchases and exporters rushing to complete transactions in March prior to the implementation of US tariffs. This resulted in the services sector sinking 0.4% and breaking a five-month streak of gains. Industrial production, furthermore, sank 0.6%. It was a moderation from the 0.7% drop in March but worse than the estimate for a 0.5% dive. On a y/y basis, industrial production was lower by 0.3% compared to the -0.2% estimate and the preceding month’s 0.7% slip. Manufacturing output also fell 0.9%. Economists expected an unchanged figure of -0.8%.

As Exports Drop

UK exports plummeted 8.8% in April. Of the £2.7 billion decline, £2 billion was attributed to products shipped to the US, likely a result of tariffs. Imports were somewhat stable with an increase in cross-border commerce involving the European Union offset by a decline in activity with other countries.

Hong Kong Industrial Production Growth Eases

Hong Kong industrial production for manufacturing grew 0.7% y/y in the first quarter, slowing from 1% in the final quarter of 2024. Paper products, printing and reproduction of recorded media industry led with a 2.9% increase followed by the 2.4% growth for the metal, computer, electronic and optical products categories. The machinery and equipment industry category also expanded 2.4% and the textiles and wearing apparel industry gained 0.8%. Conversely, food, beverages and tobacco weakened by 0.3%.

And Gate Prices Growth Slows

Also during the first quarter, the Producer Price Index recorded a 4.8% y/y hike, up from 4.10% in the final three months of 2024. Within the benchmark of gate prices, the metal, computer, electronic and optical products, machinery and equipment category fetched 9.7% more for items while paper products, printing and reproduction of recorded media industry prices were 3.5% higher. Food, beverages and tobacco industry climbed 0.9%. On the other hand, the textiles and wearing apparel industry sold products at prices that were 0.5% lower than during the year-ago quarter.

Japan Businesses Anticipate Declining Profits

Japan’s Business Sentiment Index (BSI) Large Manufacturing Conditions fell to -4.8 for the second quarter, worse than the consensus expectation for a positive 0.8 reading and the first-quarter number of -2.4. Another gauge of large non-manufacturers weakened to -0.5 from 4.1 in the prior period. Both business categories expect profits to fall 2.1% this year. Among capital expenditures, investments in software, plants and machinery are forecast to grow 7.3%.

Japan Investors Continue to Journey Abroad

Japan investors pumped $458.6 billion into foreign bonds during the week ended yesterday, up from $118 billion in the preceding seven-day period. They also snatched up $180.2 billion in equities, which was down substantially from $336.1 billion in the prior period.

Australian Consumers Expect Stronger Price Pressures

Australia consumers expect inflation to hit 5% during the next 12 months after last month recorded an expectation of 4.1%, according to the Melbourne Institute (MI) Inflation Expectations gauge.