Gold hits 3400. What is Wall Street betting on?On Thursday (June 12), the U.S. Department of Labor released the Producer Price Index (PPI) for May and the initial jobless claims data for the week ending June 7. The data showed that the annual rate of PPI in May was 2.6%, in line with market expectations, and the previous value was 2.4%; the core PPI monthly rate only increased by 0.1%, lower than the expected 0.3%, and the previous value was -0.4%. The number of initial jobless claims remained unchanged at 248,000, slightly higher than the market expectation of 240,000, and the four-week average rose to 240,200, while the number of continued claims increased sharply by 54,000 to 1.956 million, setting a recent high. These data reflect that the U.S. labor market continues to cool, and inflationary pressures have eased but there are still uncertainties. The market's sensitivity to the Fed's expectations of rate cuts has further increased, coupled with the economic uncertainty caused by tariff remarks, investor sentiment has become cautious.
Immediate market reaction: Risk aversion heats up, and the dollar and U.S. Treasury yields are under pressure
After the data was released, the financial market reacted quickly, and the dollar index fell 1.02% to 97.63, reflecting market concerns about slowing inflation and a weak labor market. U.S. Treasury yields continued to fall, with the 10-year Treasury yield falling 6.7 basis points to 4.343%, a daily decline of 1.63%, showing investors' cautious attitude towards the economic outlook. Short-term interest rate futures prices rose, and traders further bet on the possibility of the Federal Reserve cutting interest rates this year. The probability of a rate cut at the September 17 meeting rose from 76% before the data was released to nearly 80%.
In the stock market, S&P 500 futures fell 0.25%, continuing the previous day's 0.3% drop. Market sentiment was affected by weak labor market data and sudden events in the aviation industry. Boeing's stock price plummeted 7% due to the crash of Air India's 787 Dreamliner, dragging down the performance of the Dow Jones Index. The gold market showed safe-haven appeal. Spot gold broke through $3,390/ounce to $3,390.13/ounce, up 1.05% on the day; the main contract of COMEX gold futures rose 1.97% to $3,410.40/ounce, reflecting the market's rising demand for safe-haven against economic uncertainty. In the foreign exchange market, the pound rose to 1.3600 against the US dollar, up 0.42% on the day.
Compared with market expectations before the data was released, the mild performance of the PPI data slightly eased inflation concerns, but the high level of initial jobless claims and the significant increase in the number of continued claims intensified the market's concern about the weak labor market. Before the data was released, some institutions expected the PPI monthly rate to reach 0.2%, while the number of initial claims could fall back to 240,000. The actual data was lower than inflation expectations but higher than employment expectations, and market sentiment shifted from cautious optimism to risk aversion, and the decline in the US dollar and US Treasury yields reflected this shift.
Data interpretation: Weak labor market and inflationary pressure coexist
From the data details, the annual PPI rate of 2.6% in May was in line with expectations, slightly higher than the previous value of 2.4%, indicating a mild recovery in inflationary pressure on the production side, but the core PPI monthly rate increased by only 0.1%, lower than expected, indicating that the inflation momentum after excluding food, energy and trade was limited. This is consistent with the recent trend of the Consumer Price Index (CPI) data, suggesting that inflation has stabilized overall, but has not yet fully returned to the Fed's 2% target range. In terms of the labor market, the number of initial unemployment claims has continued to run high, with the four-week average rising to 240,200 and the number of continued claims increasing to 1.956 million, indicating that it is more difficult for the unemployed to find jobs. Although the median unemployment duration has dropped from 10.4 weeks in April to 9.5 weeks in May, there has been no large-scale layoffs in the labor market, but the growth momentum has slowed significantly.
Analysts from well-known institutions pointed out that part of the reason for the cooling of the labor market is related to the economic uncertainty caused by tariff rhetoric, and companies tend to hoard labor rather than actively expand. In addition, the White House's recent tightening of immigration restrictions has further compressed the labor supply. The Quarterly Census of Employment and Wages (QCEW) data indicate that job growth from April 2024 to May 2025 may be overestimated, and Barclays economist Jonathan Millar expects that the benchmark revision in 2025 may reduce job growth by 800,000 to 1.125 million, an average monthly decrease of 65,000 to 95,000. This forecast further reinforces market concerns about an economic slowdown.
Institutional and retail views also reflect similar sentiments. Before the data was released, retail investors expected that if the PPI increase was lower than expected and the initial claims data was higher than expected, the Fed would be under more pressure to cut interest rates. After the data was released, the PPI data was moderate and the initial claims data was high. The market's expectations for the Fed's September rate cut were further heated up, and the trend of gold and US Treasury yields has already said it all. Some retail traders believe that both the initial claims data and PPI are weak, the US dollar index fell below 98, and they are bearish on the US dollar in the short term, and gold bulls have opportunities.
Compared with the optimistic expectations before the data was released, retail sentiment turned cautious, and some investors began to pay attention to the allocation opportunities of safe-haven assets.
Expectations of Fed rate cuts and changes in market sentiment
After the data was released, the market's expectations for the Fed's monetary policy changed subtly. Before the data was released, the market's probability of a rate cut at the Fed meeting on July 30 was only 23%, and the probability of a meeting on September 17 was 76%. After the release of PPI and initial claims data, the probability of a rate cut in September rose to nearly 80%, reflecting the market's comprehensive judgment on slowing inflation and a weak labor market. Traders have fully digested the possibility of two rate cuts this year, and the rise in short-term interest rate futures further confirms this expectation. However, tariff rhetoric and potential fiscal stimulus policies (such as the Republican tax cut plan) may put upward pressure on inflation, limiting the Fed's room for rate cuts.
From the perspective of market sentiment, before the data was released, investors' expectations for PPI and initial claims data were relatively divided. Some institutions expected that inflation might exceed expectations, while labor market data might improve. The mild performance of actual data dispelled concerns about overheating inflation, but the weakness of employment data exacerbated expectations of an economic slowdown.
Outlook for future trends
Looking ahead, market trends will remain volatile under the combined influence of the Fed's monetary policy expectations, tariff rhetoric and the global macro environment. In the short term, the mild performance of PPI data provides the Fed with greater policy flexibility, but the weakness of initial and renewal data indicates that the labor market may slow down further, and the probability of a rate cut in September will remain high. However, the upward risk of inflation caused by tariff rhetoric and potential fiscal stimulus policies may limit the extent of rate cuts. The market needs to pay close attention to the July non-farm payrolls data and June CPI data to further confirm the trend.
From a historical perspective, the S&P 500 index often shows a volatile pattern against the backdrop of mild inflation data and weak employment data. The current index is 2% lower than the historical high on February 19, and may continue to be under pressure in the short term. Gold's appeal as a safe-haven asset is increasing, and a breakthrough of $3,390/ounce may indicate further upside. The weakness of the US dollar index may continue, but we need to be wary of the support for the US dollar from safe-haven demand caused by tariff policies or geopolitical risks (such as the situation between Russia and Ukraine).
In the long run, continued weakness in the labor market may prompt the Fed to adopt a more accommodative policy in the second half of 2025, but the uncertainty of inflationary pressure will keep the policy path cautious. Investors should pay attention to the guidance of subsequent economic data, especially the revision of QCEW data, to judge the true situation of the job market.
