Treasury Yields Fall On Weak Inflation, Retail Sales

Treasury Yields Fall On Weak Inflation, Retail Sales

Treasury Yields Fall On Weak Inflation, Retail Sales

Traders on Friday reduced their view the Federal Reserve would raise rates again before year-end following weaker-than-forecast data on consumer prices and retail sales in June, according to interest rates futures.

The Consumer Price Index, which tracks the costs of household goods and services, was unchanged last month after falling 0.1 per cent in May, the Labor Department reported.

Core inflation - which strips out food and energy - rose 0.1% in June and is up only 1.7% over the last 12 months, continuing a break-out below the 2.0% level, where it remained for more than a year. Year-on-year, CPI fell from 1.9% in May to 1.6% in June, below the forecasted 1.7% rise.

Lower costs for gas, airline tickets, new and used cars and wireless mobile phone plans kept US consumer prices flat in June, evidence that inflation remains muted.

Data from the Commerce Department showed that retail sales fell by 0.2% in June after edging down by a revised 0.1% in May.

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The benchmark 10-year US Treasury note rose 8/32 in price to yield 2.3212 per cent. Stocks in the USA were mostly higher even as the data was reported, with the Nasdaq climbing 0.2%.

Borkin said if the numbers show an "inching higher" from an underlying and core perspective the market will be happy to continue to price in hikes and keep the NZD supported but "if its weaker across the board, you'll see the kiwi follow suit", he said. Economists had expected consumer prices to inch up by 0.1 percent.

Food prices were unchanged on the month while energy prices fell 1.6% with a fifth successive decline in fuel oil prices.

Given the present outlook, we expect the Fed will likely raise rates another 25 bps this year as well as begin the process of slowly unwinding its balance sheet sometime in the fourth quarter.

UK's benchmark FTSE 100 closed down by 0.7 percent, the pan-European FTSEurofirst 300 ended the day down by 0.01 percent, Germany's Dax ended down by 0.2 percent, France's CAC finished the day down by 0.1 percent. The dollar index is breaking to the lowest level since September 2016 and gold is up 1%.

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U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 46 cents to settle at $46.54 per barrel.

Before this week, investors had been selling bonds, driven largely by anxiety that an improving global economy may allow major central banks outside of the scale back on stimulus efforts that have helped lift asset prices since the financial crisis.

"They (Fed comments) add to our conviction that no further Fed hike should be expected for the rest of the year, which should prove reassuring for markets concerned about excessive tightening risk globally", Mizuho's head of euro rates strategy Peter Chatwell said.

The unemployment rate is at 4.4 percent, near a 16-year low. Platinum and palladium advanced 1.5% and 0.6%, respectively.

The loonie was about 0.1 percent weaker early on Friday at C$1.2729 to the dollar but is up nearly 1.1 percent this week.

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