Investors appeared to shrug off global trade uncertainties, which have plagued the market as of late, and push stocks higher, with regained momentum for Treasury yields lifting financials, and the NASDAQ posting another record high. In economic news, the trade deficit unexpectedly narrowed but Q1 productivity was revised lower. Meanwhile, crude oil prices fell following an unexpected rise in oil inventories, and the U.S. dollar extended yesterday’s slide. Gold finished higher.

The Dow Jones Industrial Average (DJIA) jumped 346 points (1.4%) to 25,146, the S&P 500 Index rose 24 points (0.9%) to 2,772, and the NASDAQ Composite advanced 51 points (0.7%) to 7,689. In heavy volume, 957 million shares were traded on the NYSE and 2.2 billion shares changed hands on the NASDAQ. WTI crude oil fell $0.79 to $64.73 per barrel and wholesale gasoline lost $0.04 to $2.07 per gallon. Elsewhere, the Bloomberg gold spot price moved $0.66 higher to $1,297.06 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.3% to 93.66.

The trade balance showed that the deficit surprisingly narrowed to $46.2 billion—a seven-month low—in April, compared to the Bloomberg forecast of $49.0 billion. March’s deficit was revised lower to $47.2 billion. Exports were up 0.3% month-over-month (m/m) at $211.2 billion—a record high—while imports dipped 0.2% to $257.4 billion.

The MBA Mortgage Application Index rose 4.1% last week, following the prior week’s 2.9% decrease. The uptick came as a 3.8% gain in the Refinance Index was met with a 4.2% rise for the Purchase Index. The average 30-year mortgage rate fell 9 basis points (bps) to 4.75%.

Final Q1 nonfarm productivity was revised to a 0.4% rate of growth on an annualized basis, versus estimates of a 0.6% increase, and compared to the preliminary report of a 0.7% rise. Q4 productivity was unrevised at a 0.3% gain. Unit labor costs were adjusted to 2.9% gain, from the initial report of a 2.7% increase, and versus the forecast calling for an adjustment to a 2.8% rise. Q4 labor costs were revised higher to a 2.5% rise.

Treasuries were lower, as the yield on the 2-year note rose 4 bps to 2.52%, the yield on the 10-year note gained 6 bps to 2.97%, and the 30-year bond rate gained 5 bps to 3.12%.

Treasury yields have been choppy after a drop last month, but the 10-year note is clawing back to near the 3.00% mark, while the U.S. dollar extended yesterday’s downside reversal on resurfacing European monetary policy uncertainty. Bloomberg reported yesterday that the European Central Bank (ECB) could have a lively debate on whether to exit its stimulus measures at its meeting this month, which would come as the Fed is highly likely to hike rates next week and a recent string of upbeat economic data, headlined by last Friday’s stronger-than-expected May nonfarm payroll report, has appeared to calm concerns about the impact if the Fed has to accelerate its tightening campaign to combat inflation.

Schwab Center for Financial Research – Market Analysis Group

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