US Treasurys Strengthen After Soft Inflation Reading

Mandy Carr
July 16, 2017

The drop came after the lacklustre USA data raised doubts about U.S. economic growth and whether the Fed will hike rates again this year. Inflation came-in flat versus an expected.2% gain, and retail sales fell by.2% against the expectation for a.1% gain.

Peter Boockvar, chief market analysts for the Lindsey Group, sees the central bank "backing off somewhat from hiking rates in September".

Money markets pricing suggests less than a 50 percent chance of a hike over the next year, according to CME's FedWatch tool. The British pound rose sharply against the greenback on Friday, climbing more than 1 percent after data further undermined expectations for more hikes in USA interest rates.

The benchmark 10-year U.S. Treasury note US10YT=RR rose 6/32 in price to yield 2.3248 percent.

Looking ahead, investors are awaiting a host of US economic indicators, including core inflation, retail sales and industrial production for June later in the session for more insight into how the Fed might proceed.

The euro EUR= gained 0.64 percent to $1.468.

Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.1 per cent last month after being unchanged in May.

That view was further reinforced by other US policymakers such as Dallas Federal Reserve Bank President Robert Kaplan on Thursday, though analysts were wary of kicking the dollar lower before USA inflation data.

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The Federal Reserve is embarking on an annual summer ritual: Downgrading its overly optimistic forecasts for economic growth and, potentially, preparing for a pause in interest rate increases. It also raised speculation that a third rate hike is out of Fed's reach. The Dow rose 0.1 percent to 21,553.09.

But, and this was enough for salivating bulls looking for hints that rate hikes could slow down or pause, "As we indicate in our statement, it's something we're watching very closely, considering risks around the inflation outlook". The yield on the 30-year bond, or the long bond, TMUBMUSD30Y, -0.85% fell 3.1 basis points to 2.888%.

Yellen's comments on Wednesday regarding the neutral rate and subdued inflation sent a more dovish message to the markets than we've become accustomed to, particularly of late with a number of central banks suddenly appearing in a rush to tighten monetary policy.

Oil rose 1 percent on Friday, boosted by lower USA stockpiles, a slight slowdown in US crude production and signs of increased Chinese demand, but trading was volatile as global supply remained strong. It was poised for a weekly gain of 1.3 percent, the biggest since mid-May.

Brent crude futures, the worldwide benchmark for oil, were up 31 cents at $48.73 per barrel.

Brent crude futures LCOc1 , the worldwide benchmark for oil, settled up 49 cents at $48.91 per barrel.

The most-active US gold futures for August delivery futures settled up $10.20, or 0.84 percent, at $1,227.50 per ounce.

Other reports by Guamnewswatch

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