Stocks notch new record on Fed hopes and weak economic data

Ashley Carr
July 16, 2017

Euro strengthened against the dollar on Friday as the greenback weakened after a benign reading of USA inflation in June and soft retail demand raised doubts the Federal Reserve would increase interest rates later this year.

Bond prices rallied after the Labor Department said the consumer-price index was unchanged in June from the prior month. The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent in June.

U.S. Treasury yields dropped to multi-week lows as the benign inflation data and unexpected fall in retail sales fuelled doubts about an interest rate increase later this year.

"Alongside are retail sales, where we expect on-consensus gains and a solid core sales pickup", said TD securities in their week ahead report.

The New Zealand dollar was trading at 73.16 U.S. cents as at 5 pm from 72.84 cents late yesterday but was weaker versus last Friday in NY when it traded at 73.80.

USA two-year yields slid as well, down to 1.339 percent, from Thursday's 1.367 percent, after sliding to a three-week trough of 1.323 percent. This fell short of market expectations of a 0.1% increase. Core prices had been expected to rise by 0.2%.

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.

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The US dollar added 0.08 percent to 1.3746 against the Singapore dollar while the Malaysian ringgit was up 0.01 percent to 4.2908.

Chandler said there's not much on the near-term horizon that will drive the dollar higher, but it could still adjust if the Fed raises interest rates at the end of the year. Yellen and her cohorts have emphasized their belief that the pullback in inflation is transitory and driven by short-term factors like recent price competitiveness in cell phone plans.

The euro EUR= gained 0.64 percent to $1.468. The Japanese yen strengthened 0.65 per cent versus the greenback at 112.53 per dollar, while the Mexican peso gained 0.48 per cent and the Canadian dollar rose 0.58 per cent versus the greenback. The Dow rose 0.1 percent to 21,553.09. After initially falling below 2.3%, the 10-year yield climbed back above that level, reflecting strong forces that are still pushing up on yields, analysts said.

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". It was the yield's largest weekly decline since the week ended June 2.

Ten of the 11 major S&P sectors rose, with information technology .SPLRCT up 0.89 percent to lead the advancers.

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

This week's dynamic contrasts sharply with recent Fed commentary focusing, for instance, on elevated asset price valuations and the fact that financial conditions have actually loosened since the Fed started tightening in December 2015.

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