US Data Eyed After Yellen's Comments

Posted July 16, 2017

The drop came after the lacklustre United States data raised doubts about U.S. economic growth and whether the Fed will hike rates again this year. US retail sales unexpectedly fell in June for a second straight month, which could temper expectations of strong acceleration in economic growth in the second quarter.

Investors are paying especially close attention to inflation readings after hawkish signals from the Fed and, even more so, from the European Central Bank tripped up markets in late June, sending technology stocks including Amazon (AMZN) into a brief tailspin.

Japan's Nikkei 225 added 0.1 percent to 20,118.86 and South Korea's Kospi rose 0.2 percent to 2,413.53. CPI is expected to rise by a slight 0.1 percent on headline inflation.

US 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.

The U.S. dollar decline dafter data showed U.S. inflation in June was unchanged from the previous month and retail sales unexpectedly weakened, fueling doubts about an interest rate increase later this year.

Indeed a cursory look at the EUR/USD chart, which has extended its uptrend into the 1.14s recently, supports a continuation higher, which would be commensurate with a weaker Dollar profile. Even excluding for auto sales, which have declined recently, retail sales figures still posted a 0.2% drop.

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.

As a result, traders trimmed expectations of a rate hike by the end of the year, with dollar interest rate futures pricing in about a 55 per cent chance compared to about 60 per cent earlier.

Yellen sent bond yields lower Wednesday when she said the central bank is concerned about low inflation and would alter policy if it sees a longer-term trend.

With inflation still shy of the Fed's 2% target and retail spending dipping too, economists are now not quite so sure the Fed will raise rates in line with its prediction in the second half of the year. Retail sales rose 2.8 per cent year-on-year in June. While the 2-year note yield TMUBMUSD02Y, -2.05% slipped 3.2 basis points to 1.335%.

For the week, the S&P rose 1.4 per cent, the Dow 1.05 per cent and the Nasdaq 2.6 per cent, it's biggest weekly gain in 2017. Australia's S&P/ASX 200 rose 0.3 percent to 5,751.10. The contract finished the week up 1.5 percent, its first gain in six weeks. The contract gained 59 cents, or 1.3 percent, to settle at $46.08 per barrel on Thursday.

OIL: Benchmark U.S. crude gained 7 cents to $46.15 per barrel in electronic trading on New York Mercantile Exchange.

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