Fed's Action in Focus as Rates Remain Far From Restrictive

Barry Adams
14 Jun, 2023
New York City

Stocks continued to advance ahead of the Federal Reserve's rate decision and comments about the state of the economy. 

The S&P 500 index and the Nasdaq Composite index traded at new 13-month highs on the hopes that the central bank may leave rates unchanged after increasing ten times in a row since March 2012.  

The latest read on producer price inflation followed the release of consumer inflation data on Tuesday which declined to a two-year low of 4.0% in May. 

After multiple rate hikes consumer and wholesale inflation measures have cooled from as high as 9% and 11% respectively, inflation still remains significantly above the central bank's target rate of 2%. 

Real rates are still not restrictive enough as suggested by elevated housing market, low treasury yields and broad price pressures. 

 

Wholesale Inflation Declined In May 

Producer prices for final demand declined 0.3% in May from the previous month, following a 0.2% rise in April, the U.S. Bureau of Labor Statistics reported Wednesday. 

Goods prices declined 1.6%, the largest decline since July 2022 and services prices increased 0.2%. 

Most of the May decline is attributable to the index  for final demand energy, which dropped 6.8%. Sixty percent of the May decline in the index for final demand goods can be traced to a 13.8% drop in prices for gasoline.

Prices for final demand foods moved down 1.3%. 

In contrast, the index for final demand goods less foods and energy increased 0.1%.

Service inflation increased 0.2% in May and over 40 percent of the increase in prices can be attributed to margins for automobiles and automobile parts retailing, which rose 4.2%.

On an annual basis, core inflation, which excludes food, energy and trade, eased to 2.8% in May from 3.3% in April and 6.8% a year ago. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.3% to 4,379.74 and the Nasdaq Composite added 0.3% to 13,605.72.

The yield on 2-year Treasury notes increased to 4.64%, 10-year Treasury notes edged down to 3.69% and 30-year Treasury bonds rose 3.91%. 

Crude oil increased $0.71 to $70.03 a barrel and natural gas prices increased 3 cents to $2.37 a thermal unit. 

 

U.S. Stock Movers

Shell PLC increased 2.5% to $59.85 after the UK-based energy company said it plans to increase dividend and accelerate stock buybacks. 

The company announced its plan to buy back at least $5 billion of its in the second half, 15% increase in dividend from the second quarter and shareholder distribution increased to 30% to 40% of cash flow from operations. 

Logitech International SA plunged 11.9% to $56.26 after the company said its chief executive officer Bracken Darrell plans to leave the company. 

Advanced Micro Devices, Inc jumped 2.2% to $127.09 and the company said on Tuesday it is ready to ship its latest chip for artificial intelligence. 

Vodafone Group Plc increased 1.9% to $9.32 after the company and CK Hutchison owned Three UK agreed to merge their UK businesses. 

After the merger, the UK will have only three mobile network operators - BT, Virgin Media O2 and Vodafone-Three UK. 

Alphabet Inc Class A declined 0.9% to $122.78 after the European Union charged Google's parent for violating antitrust rules in adtech business.