Treasury yields tumble after weaker-than-expected retail sales, inflation

Janie Parker
July 16, 2017

"We remain of the view that a clear rebound in the official data is due but our patience is being tested", he said in a note to clients. Retail sales dropped 0.2 percent last month.

As Societe Generale strategist Kit Juckes told Bloomberg: "If we trundle along with the current level of inflation, the Fed won't stop slowly raising rates, but they won't be in any hurry".

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 increase in core prices reflected 0.2% growth in shelter prices as well as higher prices for medical care, motor vehicle insurance, education, and personal care.

Traders will also be looking at the USA consumer price index (CPI) data as the next important inflection point with year-on-year inflation rate estimated to decline for a fourth consecutive month by 1.7 percent in June following a similar gain in May, it would also be the lowest since November 2016.

However, manufacturing output was up just 0.2 percent and is up 1.2 percent year-over-year, with capacity well below its peak.

Excluding auto sales, retail sales still dipped by 0.2% in June following the 0.3 decline seen in May.

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At 10:12 a.m. EDT (1412 GMT), federal funds futures implied that traders saw a 53-percent chance the Federal Reserve would raise key overnight borrowing costs by at least a quarter point at its December 12-13 meeting, down from about 55 percent at Thursday's close, according to CME Group's FedWatch program.

USA interest rates futures rose as traders pared their view the Fed would increase rates again in 2017.

European shares had their strongest week in more than two months as investors piled back into equities on signs that the world's major central banks would likely not tighten monetary policy as quickly as some had feared.

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. "The prospects for a third hike in short-term interest rates this year continue to dim". The Dow rose 0.1 percent to 21,553.09. It earlier fell to 2.279 percent, its lowest since June 30.

Federal Reserve Chair Janet Yellen has attributed the slow inflation this year to one-off, "transitory" factors, although she said central bankers are watching the data carefully. The 2 yr yield was at 1.35% before the data and is down 2 bps since. Rental costs rose, with owners' equivalent rent of primary residence increasing 0.3 per cent after advancing 0.2 per cent in May.

For the week, silver is on track for a gain of around 1.5%. The contract gained 59 cents, or 1.3 percent, to settle at $46.08 per barrel on Thursday.

West Texas Intermediate (WTI) crude futures settled up 46 cents, or 1 percent, at $46.54 per barrel.

Other reports by TheDailyFarc

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