Inflation felt by U.S. producers rose less than expected on an annual basis in May, bolstering market optimism for a sustained decrease in price pressures throughout the economy, following a lower-than-anticipated consumer inflation report released on Wednesday.

Simultaneously, the Labor Department reported on Thursday that weekly jobless claims rose more than anticipated, reaching their highest level since August 2023.

May Producer Inflation Report: Key Highlights

• The Producer Price Index (PPI) for final demand increased by 2.2% year-over-year last month, down from the upwardly revised 2.3% rate recorded in April and below the anticipated 2.5%, according to consensus economic data from Econoday.
• On a monthly basis, the PPI contracted at a 0.2% pace, decelerating from the previous 0.5% and below expectations of a 0.1% increase.
• When excluding food and energy items, the core PPI saw a 2.3% year-over-year increase, down from both the previous and expected 2.4%.
• On a monthly basis, the core PPI stalled, declining from the previous 0.5% and falling short of the predicted 0.3% increase.

Unemployment Benefits Report

• The number of people filing for jobless claims in the U.S. increased by 13,000 to 242,000 in the week ending June 8, significantly exceeding market expectations of 225,000 and marking the highest level in eight months.
• The four-week moving average for initial claims, which smooths out week-to-week volatility, increased from 222,250 to 227,000.

Market Reactions

Initial market reactions to Thursday's economic data releases saw the U.S. dollar and Treasury yields falling, reflecting improved investor expectations towards the likelihood for rate cuts.

Market participants are factoring in a 65% chance of a rate cut in September and nearly 50 basis points of cuts by year-end, implying almost two fully priced rate cuts.

The U.S. dollar index (DXY), as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), erased its earlier session gains.

Futures on major U.S. indices were higher in the premarket trading Thursday. The S&P 500 is up 0.5% while the Nasdaq 100 is 1% higher

On Wednesday, both indices, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust (NASDAQ:QQQ), hit new all-time highs, driven by a lower-than-expected inflation report.

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