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Stocks Trade Lower on Retail Growth Concerns While Producer Price Data Exceeds Forecasts

Further defining the inflation outlook for the economy, today the Labor Department reported producer price data for the month of April.  The Producer Price Index (PPI), which measures prices among US businesses, increased to its highest level in five years, up a seasonally adjusted 0.5% last month as rising computer prices (+1.1%) boosted the index.  Year-over-year, producer prices recorded a 2.5% advance, representing the largest annual rise in more five years.  Tomorrow’s release of the Consumer Price Index for April will provide more color around the inflationary picture in the US where a 0.2% monthly rise is expected.  In a separate report from the Labor Department, initial unemployment claims for the week ended May 6th totaled a seasonally adjusted pace of 236,000, a 2,000 decrease from the previous week.  The less-volatile four-week moving average of claims inched higher to 243,500, but remains 5,000 to 10,000 below March and April’s levels.  Continuing claims in the week ended April 29th totaled 1.918 million, 61,000 less than the previous week and a 28-year low.  Other data on the day included the weekly reading of Bloomberg’s Consumer Comfort Index, which fell 1.2 points to 49.7, representing the lowest mark in the past six weeks.             

Risk assets fell out of favor during today’s session as a series of weak corporate earnings results led major retailers lower.  Tomorrow investors will get a more complete picture of the sector with the release of April’s retail sales in the US, where economists are calling for a 0.6% monthly rise.  Energy stocks helped to support a decline in equities after oil prices climbed an additional 1% on the day, as barrels of WTI crude topped $47.75.  Major US stocks recovered more than half of their daily losses and finished 0.1%-0.2% lower for the session.  Treasurys recorded gains on the day, with yields/swap rates declining 1-3 bps across the curve as the yield on the 10-year note fell below 2.4%. 

Earlier today the Bank of England announced its decision to keep its current monetary policy in place, holding the benchmark interest rate at 0.25%, government bonds purchases at £435 billion ($561 billion), and the ceiling for corporate bond purchases at £10 billion ($12.9 billion).  In defense of the central bank’s stance, BOE governor Mark Carney explained that the next couple of years would be a “more challenging time for households,” with the assumption that “wages won’t keep up with prices for goods and services they consume.”  Carney also stated the potential need for a faster pace of interest rate increases given a smooth exit from the European Union.  Looking forward, the Monetary Policy Committee increased its 2017 inflation projection to 2.7% from 2.4%, largely in reaction to a weaker sterling.  The pound fell as much as 0.6% against the dollar during today’s session and is currently trading near $1.289/GBP.

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