Did the world change overnight or were the events just noise? Isreal bombed Iranian nuclear and military installations. The comments are what is to be expected depending upon one’s preconceived bias. As noted many times, no one is objective and those who say they are the most subjective people. Everyone has confirmation bias and in today’s rabid social media environment one’s preconceived views can easily be validated.
There are several “truths” about war. First, the most thought-out plans do not materialize. The outcomes are unquantified. Second, as often written the first virtue that is lost in both war and politics is truth.
Oil us up about 5%, equity futures down about 1%, and Treasuries are essentially unchanged, a muted reaction thus suggesting that last night’s event is nothing but headline and click fodder.
Changing topics, producer inflation remained muted in May, another sign that tariffs have yet to result in higher prices for consumers and businesses. The PPI rose 0.1% from a month earlier, compared with the median forecast of a 0.2% rise.
It is widely accepted that companies are absorbing price increases as to not lose market share. Inventories were accumulated prior to the enactment of the tariffs and these stores are in the process of being worked off. They are not necessarily being replaced at these higher prices.
This begets the next question. Will there be bottlenecks and supply shortages in the intermediate future? What happens if prices do not return to prior levels? Are businesses setting themselves up for failure?
Most are discounting yesterday’s weekly jobless claims which hit the highest level since 2021 as the report covers the Memorial Day holiday and the start of summer school breaks in many states that typically causes a significant distortion in the data.
The market has now fully discounted two interest rate cuts by year’s end.
The $22 billion 30-year Treasury auction was met with “strong demand,” perhaps the result of recent inflation data. For the day, fears that spiraling deficits will cause most to shun longer dated maturities did not materialize. The dollar however fell to a three-year low. Will the dollar’s fall soon begin to impact bond prices?
As commented several times, there is a strong argument that the Administration is using the dollar as a de facto tariff. The Treasury was a former Forex trader that made billions shorting the British pound with Soros Asset Management.
As indicated, Treasuries rallied across the curve. Equites were relatively quiet.
Last night the foreign markets were down. London was down 0.24%, Paris down 0.82% and Frankfurt down 1.10%. China was down 0.75%, Japan down 0.89% and Hang Seng down 0.59%.
Futures are lower by about 1%. The 10-year is up 1/32 to yield 4.36%.
