Stocks opened modestly higher this morning, edging closer to April highs. The Dow is currently up 58 pts and the SPX is flat. Banks, retailers, semiconductors and energy are all up about .5% in early trading. On the other hand, utilities, industrials and healthcare are down. VIX July futures are trading around 17, suggesting traders don’t expect a near-term volatility spike. Expected Treasury bond market volatility has collapsed this month as well. Commodities are mostly higher today, save gold. WTI crude oil bounced back to $53.50/barrel after bottoming around $51.70 a week ago. The bond market is mixed today. Treasuries are selling off a bit after a monster 6-week run. The 10-year Treasury yield notched up to 2.16%. Corporates are faring better in early trading, with the SPDR High Yield Bond ETF (JNK) up about .3%.

The Nat’l Federation of Independent Business (NFIB) Small Business Optimism Index rose to 105.0 in May, stunning economists who expected a drop. This is a big deal; Bloomberg says the report “indicate[s] the domestic economy remains relatively insulated from uncertainties surrounding trade tensions.” The survey showed improved hiring and capital spending plans among small business leader, which comes as a surprise given slower economic growth and rising geopolitical tensions. It could be that since smaller businesses tend to focus on the US consumer rather than overseas markets, they are somewhat insulated from higher trade tariffs. And the fact remains that the US consumer is in good shape.

The Producer Price Index (PPI), which measures wholesale inflation, slowed sharply to 1.8% year-over-year growth in May (from 2.2% in the prior month). Economists expected a more moderate dip to 2.0%. Inflation is clearly slowing despite the fact that unemployment is at its lowest level in nearly 50 years and higher trade tariffs usually boost inflation. Food and energy costs fell last month, more than offsetting higher costs for consumer services (i.e. transportation, hotel rooms, medical care). But again, there was no sign of trade tariff impact in PPI. On the fact of it, this report gives ammunition to those calling for an interest rate cut by the Fed next month. But the slowing trend will have to be corroborated by the Consumer Price Index report later this week.

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