CPI Data and Market Reaction
The stock market experienced a short-term rally following the release of CPI data, which showed that both overall and core CPI growth in the US for May were lower than expected. The core CPI increased by 0.1% month-over-month, marking the fourth consecutive month of figures falling below expectations. A decline in energy prices, specifically a 2.6% drop in US gasoline prices, primarily drove this slowdown.
Factors Affecting Inflation
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Housing Costs: Housing remains the most significant factor driving market prices.
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Goods Prices: The prices of cars and clothing have decreased.
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Service Costs: While still rising, the rate of increase in service costs has slowed down.
Tariff Impact and Consumer Spending
The US Department of Finance's monthly budget report revealed a $2.3 billion increase in tariffs, a surge of 270% to $1.7 billion in May. Despite this, the US fiscal budget for May showed a deficit of $3.161 billion, similar to last year's $3.471 billion, representing 9% of revenue.
While tariffs have increased, consumers have not yet felt significant inflationary pressure, indicating that companies are absorbing additional costs rather than passing them on. This has alleviated market concerns regarding tariffs and potential economic downturns.
US-China Trade Talks
Progress in Negotiations
Deputy Director of the Ministry of Commerce of China, Li Chenggang, reported that the Sino-US negotiation teams reached a consensus on the trade framework after two days of talks, describing the meeting as "professional, rational, deep, and honest". The hope is that this progress will bolster trust between the two nations and positively influence the global economy.
Agreement Details and Potential Implications
The Trump administration reportedly reached an agreement with China, pending final approval. Key aspects include:
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Rare Earths: China will resume supplying rare earths to the US.
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Student Visas: The US will allow Chinese students to study in the US.
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Tariffs: The US will maintain tariffs on 55% of Chinese goods (30% new, 25% original), while China will impose 10% tariffs on US imports.
The Wall Street Journal reported that China set a six-month deadline for its exports to the US, implying a limited release of supply. The US has agreed to ease export control measures, including those related to spray engines, originally implemented to strengthen its negotiating position. Treasury Secretary Mnuchin stated that trade negotiations with China will be a lengthy process, with the trustworthiness of China as a trading partner still under evaluation.
Market Sentiment and Geopolitical Concerns
Despite positive CPI data and trade talk progress, market sentiment remains tepid. The stock market's initial gains diminished in the afternoon, compounded by escalating tensions in the Middle East. The US has ordered the partial evacuation of its embassy staff in Iraq and authorized military families to leave the region.
Market Analysis and Stock Recommendations
Overall Market Outlook
The analyst believes interest rates are set at the current level. The index is range bound between 6,000 and 6,175 points with a possibility of retracing at any time. A drop below 6,000 points may signal a trend reversal. The current rebound may be due to seasonal factors and technical corrections.
Tesla
The analyst admits to underestimating Tesla's recent rebound, attributing it to the strong belief of its investors. Elon Musk's reconciliation with Trump, potentially motivated by policy considerations, may have further fueled the stock's rise. Despite this, the analyst remains skeptical about the company's long-term prospects, citing potential policy risks and the lack of immediate fundamental improvements.
Other Stocks
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VOYG (Space Concept Stock): While experiencing a significant initial surge, the analyst bought a small amount but urges caution due to the company's weaker financials compared to competitors.
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ASIC (Insurance Company): The IPO performed well, but is better suited for value investors.
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CHYM (US Digital Bank): Showing promise with positive EBITDA but not yet profitable.
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VNTG (Economic Service Company): Limited growth potential due to client density.
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North American Rare Earth Stocks: Plummeted after news of China resuming rare earth supply but recovered some losses. Morgan Stanley maintains a "buy" rating.
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Intel: After a volatile period, driven by Apple's move to self-made chips, the analyst notes Intel's low adaptability and lack of performance improvement, making a sustained rebound difficult.
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LMT (Lockheed Martin): Despite the US Air Force reducing F-35 orders, the analyst sees long-term buying opportunities due to the company's diverse portfolio and leading position in the military-industrial chain.
Digital Organ Radar System Company (Unamed)
The digital organ radar system announced that it's digital organ radar system has been approved by the U.S. Department of Defense to be officially deployed in UAV systems. The analyst notes the company's digital organ radar system's explosive potential and the significant stock price increase, but cautions against short-term risks unless a deep understanding of the company exists.
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