Stocks fell on Friday for their eighth weekly loss out of the last nine, as a stronger than expected report on U.S. nonfarm payrolls suggested the labor market remains strong enough for the Federal Reserve to raise rates quickly. The 10-year Treasury yield moved above 2.9% after the report, leading to losses among tech stocks. Sentiment also was hurt by a report that Tesla may be considering job cuts on worries over the economic outlook. Tesla’s concerns followed comments earlier in the week from J.P. Morgan's Jamie Dimon, who said he foresees an economic "hurricane" ahead from the war in Ukraine and the Fed's tightening policies. All three of the major market indexes finished negative for the holiday-shortened week, with the S&P 500 falling 1.2%, and the Dow Jones and Nasdaq each down by about 1%.
President Biden on Tuesday met with Fed Chairman Powell, who was formally sworn in last week for a second term as head of the U.S. central bank. The meeting at the Oval Office focused on inflation and the state of the economy, as prices continue to soar on everything from gasoline and food to transportation and housing. While the Fed has begun a cycle of quantitative tightening, many have criticized the central bank for being too slow in addressing the price pressures, while others say moving too severely could trigger a recession.
Crude prices weren't helped from a decision by OPEC to open the taps, with a barrel of WTI up another $5 to the $117 level on Thursday. The oil group agreed to raise production by 648K barrels a day in both July and August, compared with 432K bpd each month per an earlier pledge. That's a drop in the bucket (648K barrels is equivalent to 0.7% of daily global demand) and most OPEC members (except Saudi Arabia and the UAE) are already pumping at capacity. Russia's output has also fallen by about 1M bpd following sanctions over its invasion of Ukraine, and that could drop further to as much as 2M-3M bpd.
Over the weekend, Commerce Secretary Raimondo said the lifting of the previous administration’s trade duties is currently under consideration. Economists have found that Chinese exporters didn't lower prices to keep their goods competitive – meaning U.S. importers passed the duties on to American consumers – though others say the decision would not target inflation at its core (with tariffs being around since 2018) and would reward an authoritarian government.
Investors will be looking at inflation this week, with the latest data on consumer prices arriving on June 10th. Economists anticipate that headline inflation will be 8.2% Y/Y for May vs. 8.3% in April and the potential for core CPI, after backing out food and energy costs, dropping slightly to 5.9% from 6.2%. Some analysts are holding open the possibility of a relief rally if there is no upside CPI surprise.