PPI and Inflation Outlook
Recent PPI data suggests that inflation is not as severe as some believe. Wall Street's pessimistic outlook may be unwarranted. The Producer Price Index (PPI) in May rose only 0.1%, lower than market expectations. Core PPI also saw a similar increase of 0.1%, also below expectations. These figures indicate a gentle rise in prices, primarily driven by the service sector.
The overall PPI increased by 2.6%, matching market expectations, while the core PPI rose by 3.0%, the lowest since August 2024. This data, following a slowdown in CPI, suggests that tariffs imposed by the previous administration are not significantly impacting consumer prices. Companies appear to be absorbing these costs rather than passing them on.
Wall Street's Inflation Predictions
Despite the recent data, Wall Street remains vigilant about future inflation. Predictions for year-end PCE (Personal Consumption Expenditures) growth are above 3%, implying a substantial increase in the coming months. However, achieving this would require a consistent monthly core PCE increase of about 0.35% to 0.4%, which has not been sustained in recent years. Even factoring in the impact of new tariffs, the projected increase falls short of Wall Street's expectations. This suggests that Wall Street's inflation forecast may be overly pessimistic, potentially leading to positive surprises for investors in the future.
Unemployment Data
The initial jobless claims data shows a slight increase, reaching 248,000, higher than the expected 244,000. This is the highest level since late October of last year, hinting at a potential weakening of the labor market. The four-week average of new recruits is also at a new high since August 2023. Furthermore, the number of new recruits this week was 1.956 million, exceeding market expectations and marking the highest figure since November 2021. While the labor market isn't declining in a straight line, unfavorable trends in new and continuing claims strengthen expectations for potential interest rate cuts by the Federal Reserve (FEDPOOT). The combination of these data points may lead to a more optimistic outlook regarding the timing and extent of potential rate cuts this year.
Boeing and the Indian Air Crash
A recent air crash involving a Boeing 787-8 aircraft in India has significantly impacted Boeing's stock price. The crash, involving an Indian Airlines flight, resulted in over 290 fatalities. The incident is currently under investigation, with initial clues suggesting an abnormal takeoff procedure and potential operational issues.
Impact on Boeing
The accident raises serious concerns about Boeing's quality control and the reliability of its aircraft. This incident follows a series of problems for Boeing, including issues with the 737 MAX and emergency landing incidents. This latest event may prompt airlines to re-evaluate their orders and further erode investor confidence. While the immediate impact on Boeing's order book is a concern, the long-term impact may be limited due to the limited number of major aircraft manufacturers. However, the company's management and quality control issues remain a concern, making it a risky investment at this time.
US Bond Auction and Market Dynamics
The recent auction of 30-year US bonds was surprisingly successful, signaling continued confidence in US assets. Despite concerns, overseas buyers showed strong interest, boosting market sentiment. The auction's profit margin was 4.844%, higher than the previous month, but market bidding enthusiasm was underestimated, leading to a lower interest rate.
The bidding ratio reached 2.43, the second highest since January, indicating strong overall buying power. The significant participation of indirect buyers (mainly overseas banks and institutions) highlights the continued appeal of US dollar assets to global investors. Although some concerns persist, the strength of the US economy and the attractiveness of US debt suggest that funds will continue to flow back into the US market.
Technology Stocks and AI
The US market, particularly technology stocks, offers greater investment opportunities. The AI sector is expected to drive future growth, with many investable AI companies located in the United States. Furthermore, European technology stocks are relatively expensive compared to their US counterparts. This suggests a potential flow of funds from Europe to the United States, further fueling market momentum.
Trump, Musk, and Electric Vehicles
While the relationship between Trump and Musk has improved, Trump's stance on electric vehicles remains firm. He recently signed an order to abolish California's electric vehicle promotion policy, citing concerns about cost and the potential impact on the American automotive industry.
Impact on Tesla
The move may negatively affect sentiment towards Tesla in the short term, as it signals a lack of government support for electric vehicles. However, the actual impact on Tesla's performance may be less severe. Tesla is currently the only profitable electric vehicle company in the US, and the policy change could potentially increase its market share as other companies reconsider their investments in the sector. The growth of the electric vehicle market will depend on factors such as energy structure, technological advancements, and consumer awareness, rather than solely on government policies. Trump's decision may face legal challenges from California and other states that have adopted similar policies.
AMD's AI Ambitions
AMD CEO Su Zifeng has raised expectations for the AI chip market, projecting a market size exceeding $500 billion by 2028. The company recently launched the AMI-350 series GPU, claiming significant performance improvements over the previous generation and even surpassing Nvidia in certain tasks. While AMD has made progress in the AI space, it still lags behind Nvidia.
Amazon's AWS and AI Cloud
Amazon's AI cloud platform, Bedrock, is facing challenges from Google and Microsoft due to its perceived difficulty of use. Customers are finding it more flexible to develop AI agents on Google Cloud and Microsoft Azure. Amazon is responding by establishing an AI agent department and working on a major upgrade to Bedrock, aiming to make it more open and compatible. The company recognizes the importance of AI cloud for future growth and is actively working to address customer concerns.
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