U.S. stocks finished the trading session mostly higher with technology and consumer discretionary shares among the top performers, following the culmination of the U.S./North Korea summit in Singapore and ahead of tomorrow’s conclusion to the Fed’s two-day monetary policy meeting. Treasury yields were also mostly higher following domestic economic reports that showed consumer price inflation rose in line with expectations and small business optimism jumped to the second highest reading in the measure’s 45-year history. The U.S. dollar advanced, crude oil prices finished higher and gold experienced a minor decline.

The Dow Jones Industrial Average (DJIA) ticked 2 points lower to 25,321, the S&P 500 Index rose 5 points (0.2%) to 2,787, and the NASDAQ Composite gained 44 points (0.6%) to 7,704. In moderate volume, 833 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil traded $0.26 higher to $66.36 per barrel and wholesale gasoline was down $0.02 at $2.09 per gallon. Elsewhere, the Bloomberg gold spot price moved $4.36 lower to $1,296.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.80.

The Consumer Price Index (CPI) rose 0.2% month-over-month (m/m) in May, matching the Bloomberg estimate and April’s unrevised figure. The core rate, which strips out food and energy, also increased 0.2% m/m, in line with expectations, with April’s 0.1% gain unrevised. Y/Y, prices were 2.8% higher for the headline rate, above forecasts of 2.7% and versus April’s unrevised 2.5% increase. The core rate was up 2.2% y/y, matching projections and compared to April’s unadjusted 2.1% rise. Prices for gasoline, shelter, and medical care increased last month, while food, auto, recreation and personal care prices were unchanged. Tomorrow will add to the inflation picture with the release of the May Producer Price Index (PPI), with economists anticipating the measure of prices at the wholesale level to have increased 0.3% m/m, and the core rate to have gained 0.2% m/m.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for May jumped to 107.8, a 34-year high, from the prior month’s upwardly revised 105.2 level, versus the Bloomberg expectation of 105.0.

Treasuries finished slightly lower, with the yield on the 2-year note advancing 2 basis points (bps) to 2.54%, the yield on the 10-year note increasing 1 bp to 2.96% and the 30-year bond rate nearly unchanged at 3.09%.

Treasury yields have been grinding higher after a slump in May, with the 10-year note again a stone’s throw from the 3.00% mark, while the U.S. dollar has traded in a tight range as of late amid global monetary policy uncertainty. This could provide some choppiness for the greenback, as the central banks in the U.S., Europe and Japan are set to conduct their respective monetary policy meetings this week, with last week’s Bloomberg report that European Central Bank policymakers will likely hold an initial formal discussion on bringing an end to its stimulus program when they meet on Thursday adding its own wrinkle to the mix. The Fed is also widely expected to hike rates following its two-day meeting that began today and will conclude tomorrow, with a highly-expected increase to the Fed funds rate, amid a string of recent upbeat economic data appearing to calm concerns of the impact of any acceleration in the Fed’s tightening campaign in order to combat inflation.

Yesterday’s optimism heading into the summit between U.S. President Donald Trump and North Korea’s Kim Jong Un was short-lived, as the signed historic accord between the two countries included agreed-upon denuclearization on the Korean peninsula, but was short on details. Trade concerns have resurfaced, as the attention quickly shifted from the U.S/North Korea meeting to remaining fallout from what indeed proved to be a highly contentious G7 gathering in Canada over the weekend, as the reported rift between President Trump and Canada’s Prime Minister ratcheted higher. Meanwhile, the European political drama of recent leadership changes in Spain and Italy remain in the back of the mind of investors, and U.K. BREXIT uncertainty continues to loiter.

Schwab Center for Financial Research – Market Analysis Group

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