Trader Focus on Yellen, PPI and Friday's Consumer Inflation Report

An aging population and lagging population will make it hard for the US to hit Donald Trump's growth target according to Janet Yellen

An aging population and lagging population will make it hard for the US to hit Donald Trump's growth target according to Janet Yellen

USA treasury yields dropped Friday after US inflation rates slowed again and retail sales weakened unexpectedly, adding to doubts that the Federal Reserve will raise interest rates again this year.

Excluding food and energy prices, core producer prices also crept up by 0.1% in June after climbing by 0.3% in May.

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.

U.S. consumer price inflation fell more sharply than expected, to 1.6% in June from 1.9% in May. In particular, core retail sales which exclude automobiles, declined by 0.2% instead of posting an equivalent percentage improvement that was expected by analysts.

"We remain of the view that a clear rebound in the official data is due but our patience is being tested", he said in a note to clients.

US Treasuries yields stayed below their recent peaks, with the 10-year yield at 2.352 per cent compared with 2.398 per cent marked on Friday, its loftiest level in nearly two months. Friday's CPI report is expected to show a 0.2% increase. Ex-auto sales were 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.

The euro vaulted to a 14-month high of $1.14895 in Asian trade. The pound has taken some support from a round of hawkish signals from Bank of England policymakers last week, and there are still some in the market looking out for a rise in interest rates next month.

Given the present outlook, we expect the Fed will likely raise rates another 25 bps this year as well as begin the process of slowly unwinding its balance sheet sometime in the fourth quarter. It gained by a similar quantum against the Japanese yen.

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.

Fed Chair Janet Yellen told lawmakers on Wednesday that the recent cool-off in inflation was partly the result of "a few unusual reductions in certain categories of prices" that would eventually drop out of the calculation.

The Dow Jones Industrial Average .DJI rose 84.65 points, or 0.39 percent, to 21,637.74. It was the yield's largest weekly decline since the week ended June 2. The 10 yr yield is down by 5 bps and the 2s/10s spread is narrowing by 2 bps.

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.

The most-active USA gold futures for August delivery futures settled up $10.20, or 0.84 percent, at $1,227.50 per ounce.

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

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