Weak Inflation, Retail Sales Data Lead Treasury Yields, Dollar Lower

With much focus being paid to Janet Yellen’s views towards inflation earlier this week, the Labor Department’s reporting of the Consumer Price Index for June took center stage today.  The headline CPI was unchanged for the month while core consumer prices rose a marginal 0.1%, both weaker than expected.  Compared to a year earlier, overall prices increased 1.6% while core prices rose 1.7%, significantly below the Fed’s 2% target.  The most notable declines in prices included a 2.7% drop in air fares, 1.6% fall in energy and 0.8% decrease in wireless phone services.  Adding to the negative sentiment surrounding economic growth, US retail sales reported a second consecutive month of declines.  Spending at retailers fell by a seasonally adjusted 0.2% last month (+0.1% expected), weighed down by drop-offs in sales at department stores (-0.7%), restaurants (-0.6%) and food and beverage stores (-0.4%).  Compared to the first quarter, total retail sales over the past three months were up a meager 0.2%.  In a separate report, industrial production during June displayed a larger than expected gain at 0.4%.  Much of the increase was attributed to a rise in mining output, which grew 1.6% MoM, as gains in manufacturing were once again tepid at 0.2% while utilities output remained unchanged.       

 

 

US Treasury yields/swap rates gapped lower following the release of the inflation and retail sales data, falling as much as 8 bps at the long end of the curve, before retracing some of the move to the current levels which are still 2-4 bps lower than yesterday’s closing values.  The yield on the 10-year note is currently down 2 bps to 2.32%.  All three major US stock indices increased 0.4%-0.6% for the trading session, with both the S&P 500 and DJIA printing new record highs.  Highlighting earnings reporting today was JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., all of whom matched expectations in the first quarter but disappointed with their forward-looking guidance.  The US dollar fell for a fifth consecutive day, down 0.7% against major currencies as it approached its lowest level since last September.  In commodities, crude oil jumped more than 1% today, with WTI finishing the week near $46.60/barrel, up more than 5%.