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Wall Street is in risk-on mode supported by hopes that violence in the Middle East will de-escalate in the coming days. The Israel-Iran conflict hasn’t spread to other nations, which has sparked a plunge in the geopolitical premium, sending both gold and crude oil prices south. The reduced demand for the safe-haven metal amidst dampened inflation expectations assisted by falling energy costs are restoring investor confidence in markets and the economy while bolstering rate cut probabilities. Meanwhile, today’s economic calendar has been quiet, with just NY empire manufacturing missing projections, but this afternoon features another test of duration, as the US government gears up for a $13 billion offering of 20-year bonds. Last week’s auctions performed well and improving sentiment buoyed by cooling international tensions today will likely strengthen interest in Treasuries. Against this backdrop, market participants are aggressively scooping up stocks in all sectors ex energy and buying bitcoins and forecast contracts, but the greenback and rates are near their respective flatlines. Additionally, traders are unwinding their volatility hedges and boosting exposures to all major commodities minus crude oil and gold.

Empire State Manufacturing Eases Again

Manufacturing conditions contracted in New York so far this month, according to the Empire State Index, as weak ordering and sluggish shipments weighed on results. It was the fourth-consecutive monthly decline and June’s headline reading of -16 missed the median estimate of -5.5 and arrived beneath May’s -9.2. June’s softening inventories and heavy price pressures were also emblematic of a challenging environment. Still, firms were optimistic about the near future, with the expectations component jumping into positive territory for the first time since March. Companies also reflected confidence by expanding employment after not having done so for several months. 

A Shortened but Busy, Week Ahead

The Juneteenth holiday this Thursday will shorten the trading week, but significant economic events are scheduled for the remaining three days. Tonight, we have the Bank of Japan’s interest rate decision and commentary, which has the potential to move markets positively or negatively. Tomorrow, we have an important retail sales report, which will be instrumental in assessing consumer might; the Street expects a sharp May decline following three-consecutive months of expansion, fueled, in part, by front-loading efforts designed to avoid Trump tariffs. We’ll also see industrial production, homebuilder sentiment and inventory reports released at 9:15 a.m. and 10:00 a.m. ET. Wednesday will be the main day of the week, though, folks. We have housing starts, building permits, initial unemployment claims, continuing filings and a Fed meeting alongside the release of the central bank’s summary of economic projections. Friday will be a quiet day from a data perspective to close out the week. The developments can drive a positive week for stocks and Treasuries alike, especially if the publications signal consumer endurance, employment strength, improvements in the capital-intensive real estate and manufacturing sectors and a Fed that pencils in two to three cuts in 2025 in light of cooler-than-expected inflation reports last week. Finally, peace in the Middle East will also be pivotal for continued upside from here.

International Roundup

China Retailing Grows, Other Results Are Mixed

China’s efforts to stoke domestic consumption may be paying off with May retail sales increasing at the fastest pace since December of 2023. While other challenges continued, including decelerating industrial production and declining home values, the unemployment rate fell, providing additional evidence that the country’s troubled economy may be stabilizing.

May cash register receipts were up 6.4% year over year (y/y), exceeding the economist forecast of 5% and stronger than the 5.1% gain in April. It was the strongest showing since the late 2023 jump of 7.4% and comes as the government has been providing subsidies, such as credits for trading in appliances, to encourage households to loosen their purse strings. 

In another encouraging development, the unemployment rate for the world’s second-largest economy dipped from 5.1% to 5.0% in May, pointing to resilience among employers despite global trade uncertainty.

Real estate, industrial production and fixed investment, nevertheless, continued to be the ants at the picnic of economic growth as follows:

• Home prices fell 3.5% y/y, a deceleration from April’s 4% fall, but a continuation of a long trend with values sinking every month since June of 2023, when a flat y/y result was reported.
• Industrial production moved north 5.8% y/y, a miss relative to the consensus estimate of 5.9% and a deceleration from 6.1% in the prior reporting period.
• Fixed asset investment expanded by 3.7% y/y, below the forecast for the rate to be unchanged from April’s 4% gain.

UK Home Asking Prices Decline

A decade-high level of competition caused home sellers to trim their asking prices 0.3% after moving stickers in the opposite direction by 0.6% in May, according to the Rightmove House Price Index. Prices were still up 0.8% y/y, but the metric was lower than the 1.2% escalation in May. Rightmove reports that May produced the highest number of agreed-upon sales since March of 2022. 

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