US inflation relief as PPI falls and job market cools

Good morning. Here's what happened overnight and what you need to know today.

1.

Cooling data: US wholesale inflation eased more than expected and weekly jobless claims surged to their highest level in 10 months, signalling a potential relief from price pressures and a cooling labour market. The producer price index (PPI) fell 0.2% month-on-month in May, instead of rising 0.1% as predicted by economists. Annually, the PPI rose 2.2%, from 2.3% in April. Core PPI, which excludes food and energy prices, remained flat at 2.3%. The data follow consumer price figures a day earlier also suggesting inflation is easing. Meanwhile, the Labour Department reported 242,000 new applications for unemployment aid for the week ending June 8, a jump from the previous week's 229,000 and the largest weekly increase since last August. Economists had forecast only 225,000 claims. The data underscores the impact of the Federal Reserve's interest rate hikes, totalling 5.25 percentage points since 2022 and maintained at its latest meeting, driving market expectations for rate cuts this year. (Reuters)

2.

Musk’s win: Elon Musk is expected to get approval for his jaw-dropping pay package this morning, as well as Tesla's reincorporation to Texas, after the carmaker’s CEO said in a social media post that preliminary results showed shareholders had backed the proposals. Reuters cited unnamed sources confirming the assertions, sending Tesla’s shares over 8% higher on Thursday to as much as USD191.05 ($288.58) each. The stock was trading at USD182 shortly before the market closed and ahead of the 3:30 pm meeting, Texas time. Musk shared graphs on social media indicating wide margins of support for both resolutions a day before. The pay package, initially approved in 2018 but rescinded by a Delaware judge this year, allows Musk to receive options on about 303 million shares, valued at approximately USD46 billion. The decision to move Tesla's corporate home to Texas follows Musk's criticism of Delaware's court system and aligns with SpaceX's incorporation shift to Texas. Facing opposition from prominent investors and advisory firms, the Tesla board conducted a global campaign to rally support for the proposals. (Capital Brief) (Wall Street Journal)

3.

G7 leverages Russia: The US and other G7 countries agreed to provide Ukraine with a USD50 billion ($75 billion) loan, using profits from frozen Russian sovereign assets to fund the purchase of weapons and rebuild infrastructure as the war continues. The loan, underwritten by the US and announced at a G7 summit in Italy, will be repaid using interest earned on USD300 billion in frozen Russian assets primarily held in European banks. Japan also agreed to provide USD4.5 billion in aid to Ukraine as part of a long-term security agreement signed at the gathering. A similar 10-year security deal is also expected with the US. Meanwhile, the UK announced wide-ranging sanctions targeting ships breaching Russian oil restrictions and an insurer. The measures include restrictions on four oil tankers from a so-called “shadow fleet” of over a hundred ageing vessels that help Russia evade the $60-a-barrel oil price limit western powers have attempted to impose. Ingosstrakh Insurance, a major insurer of Russian oil shipments, is also sanctioned. The sanctions also target Russia's LNG projects, the Moscow Stock Exchange, and suppliers of military goods. Coordinated with G7 nations, the steps aim to curb Russia's ability to fund the war in Ukraine and come a day after the US announced new measures to disrupt technological ties between China and Russia. (New York Times) (Bloomberg) (Financial Times)

4.

WSJ’s Gershkovich trial: A court in central Russia will try Wall Street Journal reporter Evan Gershkovich on espionage charges, prosecutors said more than a year after his arrest and despite US efforts to secure his release through a prisoner exchange. Russia's Prosecutor-General's office said it had finalised Gershkovich’s indictment, alleging he spied for the US intelligence agency to obtain secret information about Uralvagonzavod, a major tank factory. The Wall Street Journal and Gershkovich deny the charges, and Russia has provided no evidence. The Biden administration has designated him as wrongfully detained and demanded his release. In a statement, prosecutors said their investigation had "established and confirmed with documentary evidence that Gershkovich… on the instructions of the CIA, collected secret information in the Sverdlovsk region in March 2023 about the activities of the defence plant NPK Uralvagonzavod JSC on the production and repair of military equipment." The trial will be held in Yekaterinburg, but no date has been set. (Reuters) (Associated Press)

5.

Bonds rally: US Treasuries rallied following a successful USD22 billion ($33 billion) auction of 30-year bonds and key data reinforcing the case for the Federal Reserve to cut rates this year. Yields on 10-year bonds fell below 4.3%, nearing their lowest since March, according to Bloomberg data, as traders priced in expectations of nearly 0.50 percentage points of easing in 2024. The unexpected fall in the Producer Price Index (PPI) added signs of moderating inflation, while jobless claims reaching a 10-month high suggested a cooling labour market. “The latest data in hand nudge the door a little wider open for the Fed to begin making an interest rate cut later this year,” Bill Adams, chief economist at Comerica Bank, told Bloomberg. Adams is forecasting the Fed will cut rates in September and December. (Bloomberg)

6.

Libertarian’s agenda: Argentina's Senate has narrowly approved the first set of President Javier Milei's harsh austerity measures amid violent clashes between protesters and police in Buenos Aires. The protests erupted as the Senate debated the economic reform package, with demonstrators hurling petrol bombs and stones, leading to numerous injuries and arrests. The controversial measures - including declaring a state of economic emergency, cutting pensions, watering down labour rights, a generous incentive scheme for foreign investors, tax amnesty for those with undeclared assets and privatisation plans for some state-owned firms - aim to tackle Argentina's severe economic crisis, marked by nearly 300% inflation and widespread poverty. Despite significant opposition, Vice-President Victoria Villarruel cast the deciding vote in favour of the reforms. “We are going to change Argentina, we are going to make it the most liberal country in the world,” said Milei, who last year was elected on promises to drastically reduce public spending and turn around the country's flagging economy. The bill requires further approval from the lower house before becoming law but investors reacted by buying Argentinean bonds. (Associated Press) (BBC) (The Guardian)

7.

Euro stocks plunge: French and German blue-chip stocks saw their largest drop in nearly a year, with France’s CAC 40 and Germany’s DAX both falling by just short of 2% on Thursday, as ongoing political uncertainty continues to unsettle investors. The decline, driven by banking and car company stocks, marks the French index's biggest one-day drop since early July 2023 and brings it to its lowest level since mid-February. Similarly, the DAX had its steepest single-day fall since last July, closing at 18,265.68, its lowest point since early May. The region-wide Stoxx Europe 600 also closed 1.31% lower, marking its biggest one-day fall in two months, while London’s FTSE 100 fell by 0.63%. Across the Atlantic, investors were weighing the Fed’s hawkish interest rate projections against signs of cooling inflation. The S&P 500 recovered earlier losses to be 0.44% higher in late afternoon trading after the US producer price index unexpectedly fell in May and jobless claims hit a 10-month high. The Dow was down 0.18%, while the Nasdaq was 0.29% higher. (Financial Times)

8.

Yellen’s warning: US Treasury Secretary Janet Yellen warned that China's "overconcentrated supply chains" threaten US jobs and recent investments in the green energy sector, the Associated Press reported. In remarks from a prepared speech to Wall Street and business executives at the Economic Club of New York, the former chair of the US Federal Reserve reportedly highlighted concerns over China's trade policies that could impact US economic relations and competitiveness. She was quoted as saying the US ought to respond “when foreign subsidies threaten the viability of domestic firms" in strategic sectors like green energy. Chinese subsidies in electric vehicles and solar energy equipment have led to a rapid production expansion that potentially undermines climate-friendly investments under the US Inflation Reduction Act, she said. Yellen’s comments come as the US announced new tariffs on Chinese products this week. (Associated Press)