Energy Leads Equities Higher

 

Price Pressures Continue to Build

Key economic data released today included the Labor Department’s producer price index for April, which missed forecast as the cost of food dropped the most since August of 2016, down 1.1%.  The 0.1% overall monthly increase failed to hit market expectations of +0.2% and did not meet the prior month’s increase of +0.3%.  In a clear example of the volatile nature of this measurement, the drag was attributed to volatile food prices, which had surged 2.2% during March – which was the fastest monthly acceleration in nearly four years.  Looking at producers’ inflation over the past year, overall producer prices have increased 2.6% while core prices have risen 2.3%. 

 

Oil Up on Iran and Dwindling Stockpiles

Oil was up again today, some of which was a delayed reaction to the US withdrawing from the Iran Nuclear Deal yesterday, but was also impacted by the news that US stockpiles were falling.  Oil closed at $71.17 a barrel, the highest closing price in more than three years.  Crude stockpiles fell by 2.2 million barrels last week, missing estimates by 3.2 million barrels after forecasts called for a gain of 1 million barrels.  The stockpiles had to be tapped due to a decline in imports.  In addition to ramifications of sanctions on Iran there continue to be political risks for two key OPEC producers Venezuela and Saudi Arabia.

 

Equities Higher on Energy, 10yr North of 3%

Major US stock indices posted gains, led by the energy sector which saw gains as speculators believe supply may not be able to meet demand on the news of the US decision to withdraw from the Iran nuclear deal and an unexpected drop in US crude stockpiles.  In addition the release of three US citizens previously held in North Korea contributed to the positive risk-on attitude in the markets.  The Nasdaq led the way higher with a 1% gain, while the S&P 500 and DJIA posted similar gains of 0.97% and 0.75% respectively.  US Treasurys sold off throughout the trading session, as yields/swap rates increased 2-3bps across the curve, bringing the 10-year note yield close to the important 3.00% psychological barrier as of the close.  The US Dollar was generally flat on the day against both the Euro (EUR) and the Pound (GBP), down 0.1% and less than 0.1% respectively.