Markets

Stocks notch new record on Fed hopes and weak economic data

Stocks notch new record on Fed hopes and weak economic data

Reaction was largely muted to a story by Politico that Trump is increasingly unlikely to nominate Yellen next year for a second term, and National Economic Council Director Gary Cohn is the leading candidate to succeed her.

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. Economists surveyed by The Wall Street Journal had expected overall prices to advance 0.1% and core prices to gain 0.2% on the month.

Yellen, as she has in other statements recently, told lawmakers that she expects low inflation to be transitory. "The bigger market-wide events are rate decisions out of Europe and Japan along with an updated inflation print out of the United Kingdom; and this will likely be where the bulk of market participants" attention remains. Instead, it stayed flat, and the inflation rate over the past 12 months moved further away from the Fed's 2% target, falling to 1.6% from 1.9% in May. That's down sharply from February, when prices rose 2.7 percent from a year earlier.

The pound climbed 1.1 per cent in London to $1.308, its best level since last September.

The report said consumer prices in June were up by 1.6% compared to the same month a year ago, a deceleration from the 1.9% year-over-year increase growth in May.

The Fed's preferred measure of inflation, the personal consumption expenditures index, has also been slipping.

The U.S. dollar remained broadly on the back foot as traders preferred to play the risk-on trade against the yen, especially before key U.S. inflation data later today that may skew interest rate expectations in the markets. The British pound rose sharply against the greenback on Friday, climbing more than 1 percent after data further undermined expectations for more hikes in USA interest rates.

Yellen's comments on Wednesday regarding the neutral rate and subdued inflation sent a more dovish message to the markets than we've become accustomed to, particularly of late with a number of central banks suddenly appearing in a rush to tighten monetary policy.

The report showed another notable decrease in energy prices, which slumped by 1.6% in June after tumbling by 2.7% in May. That was below the 0.1% gain expected by economists.

There were also decreases in airline fares and prices for apparel, household furnishings, new motor vehicles, and used cars and trucks.

At the same time, retail sales unexpectedly fell by 0.2 percent last month, the Commerce Department reported. Elsewhere, consumer spending disappointed after a 0.2% drop in retail sales. It earlier fell to 2.279 percent, its lowest since June 30.

Weak auto sales, which have been down in the first half of 2017, were not to blame this time: excluding that volatile category, sales were still down 0.2 percent.

"The reaction in the bond market, it's more of a function of retail sales".

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


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