On Thursday, the Labor Department announced that the Producer Price Index () surged 1.1% in May and 6.5% in the past 12 months. Economists were expecting the core PPI to be even higher, so the fact that the came in below economists’ expectations is a positive development. The good news is wholesale service costs decelerated to a 0.3% increase in May, down from a 0.7% surge in April.
Unfortunately, wholesale processed goods prices soared 3.5% in May, which is the largest monthly increase since March 2021. The good news is much of this inflation is tied to energy prices, so the inflation bubble is somewhat transitory, and Treasury yields meander lower after the PPI report.
Central banks know that they cannot control food and energy prices, since they are largely inelastic to price changes. Nonetheless, the European Central Bank () raised its key interest rate by 0.25% to 2.25% on Thursday.
The ECB said, “The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth.” Interestingly, the ECB added that that its key interest rate increase was “well-positioned to navigate the uncertainty caused by the war.” Not only are most European economies suffering from a demographic decline that is causing consumption to fall, but the ECB is trying to further impede consumption with a key interest rate hike, which will do nothing to lower food and energy prices.
The euro declined a bit after the ECB key interest rate decrease, so the European Union is in the midst of a tragic mismanagement and governance emanating from Brussels.
SpaceX () will begin trading on Friday, so it will be interesting how the stock reacts after its IPO. Even if SpaceX gaps up on Friday, typically IPO stalls within a few months as insider stock lockups expire and insider selling picks up. As an example, Rocket Lab () has been under selling pressure recently on reports of significant insider selling. There is a theory that some of the recent AI selling pressure was due to investors raising money to buy SpaceX, but I should add that there is a lot of cash on the sidelines. Frankly, I think the IPO will be even more successful than SpaceX, since the excitement over the company’s Claude AI has explosive growth.
In the end, the IPO boom this year will be an all-time record, so underwriters, like Goldman Sachs will prosper from record underwriting revenue. An IPO boom is great for investor confidence and will help to boost the entire stock market. There is no doubt that we remain in the midst of a FOMO (Fear of Missing Out) market, so the investor stampede is expected to persist.