PrefBlog

US wholesale inflation ticked up:

The Producer Price Index, a closely watched gauge of wholesale inflation, rose 1.1% in May, lifting the annual rate to 6.5%, its highest since November 2022, according to Bureau of Labor Statistics data released Thursday.
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Excluding food and energy prices, a core measurement of PPI rose 0.4% from April, holding at 4.9% annually.

When also stripping out the price changes for “trade services” – a volatile category that measures profit margins for wholesalers and retailers – in addition to energy and food, that index rose 0.8% in May (a four-year high) and 5.1% annually, the largest rise since October 2022.

And the European Central Bank hiked its policy rate:

The European Central Bank on Thursday became the first major central bank to raise interest rates in response to the Iran war as policy makers around the world, including new U.S. Federal Reserve Chair Kevin Warsh, wrestle with how to confront the inflation fed by sharply higher oil prices.

The ECB’s rate-setting council raised its benchmark rate to 2.25 per cent from 2 per cent, where it had been for a year. The move comes ahead of rate-setting meetings next week at the Fed, the Bank of Japan and the Bank of England.
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The bank’s future decisions depend to a great extent on how long energy prices remain elevated and how high they go, ECB President Christine Lagarde said at a post-decision news conference. She said the bank was “well positioned to navigate the uncertainty caused by the war” and would “closely monitor the situation and follow a data-dependent and meeting-by-meeting approach.” She said the bank was “not pre-committing to a particular rate path.”

She said oil prices were expected to “lift inflation further over the summer” and that inflation was expected to remain “well above target” into the first half of next year. The Strait of Hormuz has been closed to most ship traffic for 103 days now.

Central banks in Australia and the Philippines have raises rates since the start of the war, and attention is focusing now on decisions in larger economies. For its part, the U.S. Federal Reserve is expected to keep its key interest rate unchanged when it meets next week with new chair Warsh, appointed earlier this year by President Donald Trump.

The Bank of Canada kept things steady today:

The Bank of Canada today held its target for the overnight rate at 2.25%, with the Bank Rate at 2.5% and the deposit rate at 2.20%.

The conflict in the Middle East is now in its fourth month. The resulting increases in energy prices and disruptions in global supply chains are weighing on global economic growth and pushing up inflation. At the same time, the US administration continues to propose new tariffs and trade policy uncertainty remains elevated.

In the United States, economic growth remains solid, supported by consumption and AI‑related investment. In the euro area, growth is subdued, with higher energy prices weighing on activity. China’s economic growth continues to be supported by strong exports.

Canadian financial conditions have loosened since the April Monetary Policy Report. Global equity markets have been buoyant and bond yields remain volatile. The Canadian dollar has weakened against the US dollar and other currencies.

In Canada, GDP edged down by 0.1% in the first quarter, weaker than expected at the time of the April MPR. Consumer spending grew 1.4% but government spending unexpectedly declined. Housing activity also declined and business investment remained weak. Exports fell while imports rose strongly as inventories were rebuilt. Employment was up in May, but looking through monthly volatility, employment in Canada is little changed since the start of the year. The unemployment rate continues to fluctuate in the 6 ½%-7% range with the most recent reading at 6.6% in May.

Recent data suggests that growth will resume in the second quarter but, even with some rebound, the economy is expected to remain in excess supply.

As expected, CPI inflation rose in April, reaching 2.8%. The increase reflects energy prices, both higher oil prices and the impact of the elimination of the consumer carbon tax falling out of the 12-month rate of inflation. So far, there has been limited evidence of broad-based pass-through of higher energy prices to other consumer prices. Measures of core inflation have moved down to around 2% and the share of CPI components growing above 3% is close to its historical average. Food price inflation moderated but remains high, and shelter inflation continued to slow. With global oil prices still elevated—roughly $10 a barrel above our April MPR assumptions—total inflation is expected to hover around 3% in the near term before easing gradually towards 2%.

Against this overall backdrop, Governing Council decided to maintain the policy rate at 2.25%. Economic activity in Canada has been weak and uncertainty about US trade policy persists. The conflict in the Middle East is ongoing and oil prices remain elevated. Governing Council is continuing to look through the war’s near-term impact on headline inflation, but will not let higher energy prices become persistent inflation. As the outlook evolves, we stand ready to respond as needed. The Bank is committed to maintaining Canadians’ confidence in price stability through this period of global upheaval.

Inflation in the US ticked up:

Annual inflation rose to a three-year-high of 4.2% in May, underscoring how elevated energy prices are rippling through the US economy, according to new data from the Bureau of Labor Statistics.

Prices rose 0.5% on a monthly basis, driven higher by the US-Israeli war with Iran, the latest Consumer Price Index shows. The higher cost of energy accounted for 60% of the monthly increase.

Overall food prices and grocery prices didn’t rise as fast as they did in April, increasing 0.2% and 0.1%, respectively, versus 0.5% and 0.7%.
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The underlying inflation trends are running more muted. The closely watched “core” CPI gauge that strips out food and energy rose a slower-than-expected 0.2% from April, bringing the annual rate to 2.9%.

PerpetualDiscounts now yield 5.65%, equivalent to 7.34% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.97% on 2026-06-9, but the closing price did not change from the 9th to the 10th, so we’ll overlook the date mismatch. Therefore the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed sharply to 235bp from the 250bp reported June 3.

The American indifference to the problems at Social Security continue to be ignored:

Tens of millions of retirees and other Americans could see smaller monthly Social Security checks in six years if lawmakers don’t act to shore up the program’s finances, according to an annual report released Tuesday by Social Security’s trustees.

Social Security’s retirement trust fund — which helps support payments to senior citizens, their dependents and survivors of deceased workers — is expected to be exhausted in late 2032, which is one quarter earlier than previously forecast, according to the trustees. At that time, payroll tax revenue and other income sources will be able to cover only 78% of benefits owed.

That means the next president could be faced with having to address Social Security’s shaky finances, which have long been considered a third rail in American politics. The issue could play a more prominent role in the 2028 presidential campaign if the projected expected insolvency date remains only a few years away.

The combined Social Security’s retirement and disability trust funds — are expected to be exhausted in 2034, the same as last year’s forecast, according to the trustees. At that time, payroll tax revenue and other income sources will be able to cover only 83% of benefits owed.

I don’t understand why this isn’t a huge issue in American politics. We addressed our problem with CPP back in the ’90’s – about thirty years ago. Since then, administrations of both stripes have ignored the issue, which is looming, obvious and public knowledge: Clinton, Bush, Obama, Trump #1, Biden, Trump #2 . ‘Low taxes, low taxes’ the chant goes … never mind that taxes (local + regional + federal + deficits) are basically the sme in the US and Canada, as far as I’ve ever been able to tell, as long as you don’t count medical expenses as a tax because, you know, insurance covers it.

I suspect that this is because America’s billionaires basically run the show down there; they couldn’t care less about Social Security.

The New York Fed has released the May Survey of Consumer Expectations:

May Survey: Household Finance and Labor Market Expectations Deteriorate; Inflation Expectations Down at Short-Term Horizon

• Median inflation expectations decreased by 0.1 percentage point (ppt) to 3.5 percent at the one-year-ahead horizon and were unchanged at 3.1 percent and 3.0 percent at the three-year and five-year-ahead horizons in May.
• Expectations for future credit availability deteriorated, with a lower share of respondents expecting it will be easier to obtain credit in the year ahead. Perceptions of credit access compared to a year ago remained largely unchanged.
• The mean perceived probability of finding a job if one’s current job was lost decreased by 2.3 ppts to 43.7 percent, remaining below its 12-month trailing average of 46.8 percent and marking the lowest reading since December 2025.
• The mean perceived probability of losing one’s job in the next twelve months increased by 0.5 ppt to 15.1 percent, above the series’ 12-month trailing average of 14.4 percent.

How about that Maple market, eh?

Less than one month after Alphabet Inc. GOOGL-Q -1.42%decrease
broke the record for largest Canadian dollar-denominated corporate bond offering in history, Google’s parent company has already been bested by e-commerce giant Amazon.com Inc AMZN-Q -0.33%decrease
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Amazon is selling $14-billion worth of maple bonds, the term for loonie-denominated bonds issued by foreign companies, broken into five pieces with maturities ranging from three to 30 years.

The issuance is nearly two-thirds larger than the $8.5-billion, four-part offering sold by Alphabet in mid-May and nearly double the $7.15-billion bond deal raised by Coastal GasLink in 2024, which remains the largest corporate bond ever issued by a Canadian company.
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The Alphabet deal pushed the total amount of maple bonds issued in 2026 to $19.8-billion, according to Royal Bank of Canada data, setting a new annual record that surpassed the deal-making frenzy of 2021, when the maple market hit $19.2-billion. Not including any other maple deals that have been announced since May 7, the Amazon offering pushes the 2026 total to at least $33.8-billion.

This means the current maple market is already worth nearly one-third of last year’s domestic corporate bond market, and the year isn’t halfway over. Canadian businesses issued a total of approximately $100-billion worth of corporate bonds in 2025, which was the highest amount of corporate debt issuance the country had seen in more than a decade.
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The 30-year portion of the Amazon offering is the largest, totalling $4.75-billion. Other pieces include a $3.5-billion 10-year bond, a $2.5-billion five-year bond, a $2-billion seven-year bond and a $1.25-billion three-year bond.

The yield on the 30-year part is also the highest, expected to be 1.1 per cent above government bond yields. The other pieces are expected to yield between 0.4 per cent and 0.8 per cent above government yields.

Jobs, jobs, jobs!

The US labor market appears to have found its footing: The economy added 172,000 jobs in May, shattering expectations, new data from the Bureau of Labor Statistics showed Friday.

The latest jobs report provided some reassurance that the US labor market may be stabilizing after a year of weak and stilted job growth: Unemployment held steady at 4.3%, while employment gains topped 100,000 for the third consecutive month, a pattern not seen since early 2024.

Job growth was also far stronger than initially thought in recent months. March’s payroll gains were revised up by 29,000 to 214,000, while April’s tally was revised higher by 64,000 to 179,000 jobs added.
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Annual wage growth slowed to 3.4% in May from 3.6% the month before. Based on the latest projections for the May Consumer Price Index, which is due out next week, pay gains could be running nearly 1 percentage point below inflation.
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Leisure and hospitality added an estimated 70,000 jobs in May, more than double the gains in April for the industry; the government sector added 52,000 jobs (with local government roles that exclude education accounting for 43,500 of those); and healthcare and social assistance added 47,200 jobs.

And in the Frozen North:

Canada’s economy added 87,800 jobs and the unemployment rate fell to 6.6% in May, data showed on Friday, defying widespread expectations of only modest employment growth and showing some resilience despite signs of softer economic growth.

The May data marked the first job growth of 2026 and helped wipe out almost 80 per cent of all job losses posted since the start of the year.
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Statscan said the construction sector added a net 26,800 jobs, the information, culture and recreation sector saw a gain of 19,300 jobs, transportation and warehousing employment grew by 18,700 jobs and accommodation and food services gained 17,000 jobs.

The wholesale and retail trade sector, which accounts for almost 14 per cent of the total employed workforce, posted a decline of 35,000 positions.
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The job growth last month was concentrated entirely in full-time jobs, which saw a net addition of 154,000 in May, reversing almost all of the first four months of net job losses in that category, StatsCan said. Part-time employment fell by 66,200 positions.

Average hourly wages of permanent employees, a metric closely tracked by the Bank of Canada to gauge inflation expectations, grew 3.2 per cent in May, a sharp decline from 4.8 per cent in April.

.The markets say; the markets judged:

Wall Street’s nine-week winning streak ended with a thud on Friday, as red-hot technology stocks suffered their largest daily decline since April 2025 after a hot May jobs report fueled fears of a hawkish policy pivot from the U.S. Federal Reserve.

Selling was concentrated among chip stocks and other technology favorites that have surged ⁠higher in ​recent weeks as the Nasdaq Composite Index and S&P 500 rose repeatedly to fresh highs.
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Financial markets are pricing in a ​42.7% likelihood of a rate hike at the conclusion of the Fed’s December meeting, according to CME’s FedWatch tool.

U.S. Treasury ‌yields surged ​following the report, with the yield on ‌the 2-year note, which typically moves in step with Fed rate expectations, hitting a 15-month high. It ​was at 4.147% by late afternoon.

Canadian bond yields were also up sharply for the session. Canada’s employment report showed the economy adding 87,800 jobs last month, wiping out ⁠much of the declines posted since the start of the year.

Investors are now pricing in roughly 40 basis points of interest rate hikes by the Bank of Canada through the end of the year, up from ⁠34 basis points before the data. Economists aren’t so convinced: a Reuters poll released Friday showed they expect no change in rates this year, including at a policy decision next Wednesday.
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The Dow Jones Industrial Average fell 695.15 points, or 1.35%, to 50,866.78, the S&P 500 shed 200.57 points, or 2.64%, to 7,383.74 and the Nasdaq Composite lost 1,121.53 points, or 4.18%, to 25,709.43.

The Toronto Stock Exchange’s S&P/TSX composite index ended down 803.61 points at 34,413.45, pulling back from a ‌record closing high on Thursday and marking its biggest decline since February 12. For the week, the index was down 1%.