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

Dollar Drops and Stocks Surge as Yellen Echoes the'Fed Put

"We expect a little more cautious language from Fed officials on the inflation outlook going forward", said Michael Hanson, chief economist at TD Securities in NY.

"Caution on the part of consumers comes despite a solid job market and booming equity markets and is feeding into core inflation through price wars on cell phone service, airfares, cars, clothing", she told Business Insider.

The annualised rate of inflation in several CPI components over the past three months showed declines of 4.9 percent in apparel, 5.5 percent in used cars and trucks and 4.1 percent in professional services, said Heidi Learner, chief economist in NY for brokerage Savills Studley, a unit of Savills Plc SVS.L . It's premature to reach the judgment that we're not on the path to 2 percent inflation over the next couple of years.

Economists had forecast the CPI edging up 0.1 per cent last month and climbing 1.7 per cent from a year ago.

The Labor Department said earlier Friday the CPI grew 1.6 percent from a year earlier in June, marking the smallest year-over-year gain since October 2016.

The lower-than-expected figures were the latest sign of muted inflation, which is a main threat to government bonds because it erodes the purchasing power of their fixed returns and can lead to higher interest rates from the Fed. Markets' attention has been focused squarely on economic prints out of the USA economy of late, and as we discussed two weeks ago, this has done Dollar bulls very few favors as data continues to print below expectations.

Economists polled by MarketWatch had forecast a 0.1% increase in the CPI.

Gold prices jumped 1.4 percent to the highest level in almost two weeks on Friday after data pointed to weak US inflation, reaffirming doubts that the USA central bank would again hike interest rates this year.

The report showed another notable decrease in energy prices, which slumped by 1.6% in June after tumbling by 2.7% in May. Food prices were unchanged after rising for five consecutive months. As one of the most dovish members on the panel, he is expected to mention how consumer prices may weigh on the prospect for monetary tightening.

After the report, which was released simultaneously with retail sales for the same month, the dollar weakened.

WASHINGTON (AP) - Americans curtailed their shopping in June, with less spending at restaura... It earlier fell to 2.279 percent, its lowest since June 30. Headline retail sales growth declined for the second time this year, falling by 0.2%, negatively compared to the anticipated 0.1% expansion and below the upwardly revised - 0.1% from May (from -0.3% before).

The Retails Sales month-on-month reading is slightly misleading given it mostly oscillates within a range because a sharp increase or decrease in sales is not usually sustainable over a long period.

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.

Growth in the second quarter likely got a boost from the industrial sector of the economy.

"On the basis of June's data, it is getting harder for the Fed to continue claiming that this is a temporary drop off", he added.

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