Treasury prices firm and dollar ease on weaker inflation reading

Friday 14.30 BST

What you need to know

  • US Treasury prices firm after weak inflation data
  • Dollar looks for first monthly gain since February
  • Mixed open for Wall Street after record close on Trump’s tax reform plan
  • European bourses make modest progress
  • Renminbi trading band weaker after currency hits five-week low
  • Oil arrests three-day decline

Leading quote

Cathal Kennedy at RBC Capital Markets says: “Apparent progress on the US tax [reform] theme is firing up investors’ hopes that something can actually be achieved. If that was the case, US growth would likely increase as would US Treasuries net issuance.”

Hot topic

Cautious optimism that the White House’s proposed package of tax cuts will help fuel US growth is helping draw investors into stocks and out of bonds, and leaving the dollar looking established around its highest level of the month.

The trend also comes after remarks this week from Janet Yellen, the Federal Reserve chair, that were seen as supportive of a December rate rise.

The yield on the US 10-year government bond, which rises when prices fall, has eased 1 basis point to 2.30 per cent, retreating from Thursday’s high of 2.36 per cent. Before Donald Trump’s announcement of his plans, it was established around 2.21 per cent.

However, core personal consumption expenditures fell to 1.3 per cent year-over-year for August, marking the lowest print for the Fed’eral Reserve’s preferred measure of inflation pressure since October 2015.

The dollar index is up 0.8 per cent over the week and while off 0.1 per cent on Friday at 92.70, it is set to break a string of six consecutive monthly declines.

A mixed open has dawned for Wall Street after both the S&P 500 and the Russell 2000 index of small companies set another new closing peak in New York on Thursday, continuing the market’s record-breaking run.

Equities

European stock markets are mainly positive, with London’s FTSE 100 up 0.6 per cent, as the pound slips below $1.34, following the news that year-on-year growth in the second quarter was revised down from 1.7 per cent to 1.5 per cent. In Frankfurt the Xetra Dax 30 is up 0.4 per cent. The region-wide Euro Stoxx 600 is flat.

Major Asia-Pacific stock markets were mainly higher moving into a national holiday in China next week. Hong Kong’s Hang Seng rose 0.5 per cent and the Shanghai Composite was up 0.3 per cent. Tokyo’s Topix index fell 0.1 per cent.

South Korea’s Kospi led the region, up 0.9 per cent as tensions between North Korea and the US cooled

Commodities

Brent oil is up 0.1 per cent at $57.44 a barrel, after three days of declines followed a 3 per cent rise higher on Monday tracking potential supply disruption in the Middle East.

West Texas Intermediate, the US benchmark, is flat at $51.56 a barrel.

Gold is flat at $1,287 an ounce after trading as low as $1,277 on Thursday, near its cheapest point in a month as unease over North Korea’s nuclear programme moves in and out of investors’ focus. It is down 1 per cent over the week.

Forex

The euro is up 0.4 per cent at $1.1826, with the pound down 0.3 per cent at $1.3399.

The yen is 0.1 per cent weaker at ¥112.29 per dollar and the Swiss franc is up 0.1 per cent at SFr0.9692 per dollar.

The renminbi is 0.3 per cent softer at Rmb6.6760 per dollar, a six-week low after China’s central bank again weakened the renminbi’s trading band. The People’s Bank of China lowered the daily fix — the midpoint around which the renminbi can trade 2 per cent in either direction against the dollar — for the fifth straight day.

Since September 8, when the PBoC relaxed controls on capital outflows that had been used to boost the currency, the renminbi has weakened more than 3 per cent. But it is expected to stabilise ahead of the Communist party’s 19th National Congress, which starts on October 19.

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