8@eight: ASX set for strong start on back of Wall Street jump
16 July, 2017, 00:39
USA consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.
Global stock markets scaled fresh record highs, capping their best week in more than two months, and oil prices gained in volatile trading amid signs of strengthening demand.
Oil rose 1 percent on Friday, boosted by lower US stockpiles, a slight slowdown in USA crude production and signs of increased Chinese demand, but trading was volatile as global supply remained strong.
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 year-on-year CPI has been softening steadily since February, when it hit 2.7 per cent.
Ian Kernohan, senior economist at Royal London Asset Management, says: "With headline CPI falling and core CPI still below 2%, there is little pressure on the Fed to change their gradual approach to policy tightening and I expect them to keep the Fed funds rate unchanged until December".
"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness", said Richard Franulovich, senior currency strategist at Westpac Banking Corp in NY.
U.S. Treasury yields dropped to multi-week lows on Friday as benign U.S. inflation data in June and an unexpected fall in retail sales fueled doubts about an interest rate increase later this year.
Amid the bullish backdrop, investors will likely be parsing the latest USA inflation data, released last night, for more signs as to how the Fed will proceed.
Fed Governor Lael Brainard embraced the plan to reduce the balance sheet "soon", but suggested her support for any future rate increases will depend in part on how inflation shapes up.
Despite two straight months of decreasing retail sales, consumer spending likely gained steam in the second quarter after a helping to restrict economic growth to a 1.4 per cent annualised rate in the first quarter.
The 10-year yield settled at 2.319%, compared with 2.348% Thursday and 2.393% a week earlier. The yield on the 30-year bond, or the long bond, TMUBMUSD30Y, -0.85% fell 3.1 basis points to 2.888%.
The New Zealand dollar another high-earning currency that has gained from significant risk appetite this week, shed 0.02 percent to 0.7318 after reaching an eight-month peak of 0.7369 on Thursday. Ex-auto sales were expected to rise by 0.2%.
But industrial production rose 0.4%, just above expectations, with May revised up to a slim gain, the Federal Reserve reported.
Shares of JPMorgan JPM.N , Citigroup C.N and Wells Fargo WFC.N , which have run up in recent weeks, were among the top five biggest drags on the S&P 500 as their earnings reports failed to excite investors.
In oil markets, benchmark Brent and United States WTI futures contracts were on track for weekly gains.
USA crude futures rose 1.8 per cent to $45.83 per barrel, extending their recovery from Monday's near two-week low of $43.65. The euro jumped by 0.42%, hitting $1.1449.
Data from the Commerce Department showed that retail sales fell by 0.2% in June after edging down by a revised 0.1% in May. Year-on-year, CPI fell from 1.9% in May to 1.6% in June, below the forecasted 1.7% rise.
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