Trade Talks Send Equity Bulls Towards the Monumental 6,000: June 5, 2025

Equity bulls are attacking the monumental 6,000 level on the S&P 500 as trade optimism is bolstered this morning by news of a positive call between President Trump and Chinese leader Xi Jinping. Traders garnered even more support from the US Commander in Chief hosting German Friedrich Chancellor in the Oval Office to discuss the terms of a potential agreement involving Washington and Brussels. The developments are strengthening economic and corporate earnings estimates and serving to offset two consecutive days of weaker-than-anticipated figures from the stateside calendar. Indeed, yesterday’s misses on ADP and ISM-Services were accompanied by the highest number of initial jobless claims since October amidst an elevated continuing segment. But tomorrow’s nonfarm payrolls is the main event of the week from a data perspective and investors are actively picking up forecast contracts specific to job growth as well as the rate of unemployment. Outside of stocks and forecast contracts, folks are increasing their exposures to the greenback and commodity futures ex gold. Conversely, participants are selling safe-haven Treasuries and unwinding volatility hedges in reflection of an increasingly risk-on posture. Furthermore, the yield curve is shifting in bear-flattening fashion, led north by the short-end, as fixed-income players reduce rate cut odds in light of robust activity projections and contained inflation expectations.

Claims Elevated on a Relative Basis

Unemployment claims remained elevated in the past two weeks and the initial segment rose to its highest level since October. First-time filers for benefits rose to 247,000 during the 7-day period ended May 31, exceeding the median estimate of 235,000 and the 239,000 from the prior interval. Continuing applications, meanwhile, declined modestly to 1.904 million, below the 1.910 million projection and the 1.907 million from the previous interval. Four-week moving averages edged north on both fronts, from 230,500 and 1.887 million to 235,000 and 1.895 million.

Productivity Revised Lower

First quarter productivity was dealt with an unfavorable revision this morning. The 0.8% decline reported on May 8 in the preliminary report was much shallower than today’s final -1.5% seasonally adjusted, quarter-over-quarter (q/q) annualized figure. As productivity weakened, labor costs per unit increased 6.6% q/q, significantly higher than the 5.7% initially published. Overall, it was the first productivity decrease since second quarter of 2022.

Incoming Trade Deals Pivotal For 2^nd Half Strength

With India, the EU and China potentially on deck to close an agreement with the Trump administration, investors and economists alike are enthusiastic of the resulting bump to growth and efficiencies. Turning the page on cross-border commerce disagreements is pivotal for Washington and Wall Street to remove the major risk from their purviews and increasingly focusing on the more positive aspects of the GOP policy agenda. But tomorrow’s nonfarm payrolls is top of mind to finish the week, however, traders are likely to react positively to the print unless it comes in below 75,000 because that will amplify slowdown worries. A number near 85,000 though would bolster rate cut expectations which can satisfy equity bulls while a figure at the projected 130,000 or north of that will raise confidence regarding the current cycle’s endurance going forward.

International Roundup

Singapore Consumption Recovers Marginally

Singapore retail sales posted a modest rebound in April, following a sharp decline in the previous month. Transactions expanded 0.3% on both a month-over-month (m/m) and year-over-year (y/y) basis compared to a -2.7% m/m drop and 1.3% y/y advance in the former interval. Leading the gains were the computer/telecommunications, optical goods/books, mini-marts/convenience shops and food/alcohol segments which sported m/m increases of 13.5%, 7.1%, 6% and 6%. Weighing on overall progress, however, were the department stores, apparel and recreational good categories which saw declines of 9.4%, 6% and 4.9% during the period.

Euro Wholesale Prices Cooperate

Wholesales costs dropped in April according to this morning’s Producer Price Index for the euro area. The headline figure fell 2.2% m/m and rose just 0.7% y/y, softer than the -1.8% and 1.2% expected. In comparison, March’s numbers came in at -1.7% m/m and 1.9% y/y. Energy led the drop with a 7.7% m/m slip, while a 0.1% decrease for intermediate goods also helped curb overall cost pressures. Charges for non-durable and durable consumer products did increase 0.3% and 0.1% m/m, however, while capital goods were unchanged during the period.

China Firms Optimistic of Trade Deal But I’m Not

China’s services activity accelerated last month according to last night’s Caixin/S&P Global Purchasing Managers’ Index. The headline score of 51.1 arrived in-line with expectations and ahead of April’s 50.7. An increase in new orders supported business momentum and hiring, but cost pressures did climb significantly. The inflationary impulse was seen as temporary, however, and didn’t weigh on optimism since firms in aggregate reported confidence of an incoming trade deal. Quite honestly though, I’m increasingly pessimistic of a cross-border commerce agreement between Washington and Beijing and believe that elevated tensions will remain the norm for years to come. President Trump’s onshoring goals essentially require a reduction in China’s share of international manufacturing production. That’s too much of a sacrifice for the Chinese Communist Party considering that it’s been their growth engine for decades.