Labor Market Slowing Everywhere But Jobs Report

Stocks are lower and Mortgage Bonds are higher after President Trump threatened unilateral tariffs on trade partners that do not come to the table to make a deal, as well as a tragic report of an Air India Boeing Dreamliner crash leaving from India to London. Both of those headlines are weighing on Stocks, with money flowing into the Bond market. Also helping Bonds was a tamer than feared Producer Price Index report and signs of weakness in the labor market according to the latest Initial Jobless Claims report.

Yesterday’s 10-year Treasury Note Auction was slightly better than average, with foreign participation stronger than normal. This is another sign that foreign nations are not shunning our debt like previously feared.

Later this afternoon at 1:00pm ET there will be a 30-year Bond Auction, which could influence the Bond market, depending on the level of demand.

Initial Jobless Claims

The BLS reported that Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, remained at 248,000 last week. This is an elevated figure and is the third week in a row with higher claims numbers. We have seen spikes previously, but this is a clear trend that signals a softening labor market.

At the same time, Continuing Claims, which measures individuals who continue to receive benefits after their initial claim, rose to a new cycle high of 1.96M. This is the third week above 1.9M and is the highest level we have seen since 2021. It’s also the first time we have seen consistently higher Initial Claims, with Continuing Claims being consistently above 1.9M.

It’s clear that more individuals are getting let go, and once that happens, it’s harder for them to find a job because they are staying on unemployment benefits for longer. Also remember that in most states, you can only stay on benefits for 26 weeks, so this figure continues to climb even with those falling off due to expiration.

Producer Price Index

Overall, the Producer Price Index wholesale inflation figures were cooler than feared, but it was clouded with revisions to the previous month.

For May, headline inflation rose 0.1%, which was cooler than the 0.2% expected. April, however, was revised higher by 0.3% from -0.5% to -0.2%. Year over year, headline inflation rose 2.6%, which was right in line with market estimates.

The Core rate, which strips out food and energy prices, rose 0.1% as well, which was lower than the 0.3% expected. There was a positive revision to April, bringing the previous reading from -0.4% to -0.2%, which tempered the low reading. Year over year, however, core inflation was up 3%, which was one tenth lower than estimates.

Bottom line – This was a better than feared report and even better than estimates on the core. The PPI shares some components with the even more important PCE later this month and influences about 12% of the report. All of those shared components moved lower, which would indicate that at least from those components, we should see a tamer PCE report.

Technical Analysis

Mortgage Bonds have made a nice reversal the last few days, breaking back above several levels of resistance. Bonds are now right up against the 200-day Moving Average and not far from where they were before the Jobs Report. This is a tough test at the 200-day that has prevented progress several times in recent history, but if it is broken, there is a lot of room to the upside before reaching 101.39.

The 10-year has turned around as well, now testing the 50-day Moving Average. If yields can continue lower, the big test is at the 200-day at 4.28%. If yields can get under that important floor, there is a path to the lows we saw in early May around 4.12%.