From Marc to Market:
Overview: The dollar fell alongside US rates yesterday after the softer than expected CPI. The move on both rates and the dollar were pared after the FOMC meeting which held rates steady as widely expected, but the median dot now anticipated one cut this year rather than three. The dollar has recovered more ground today and is trading with a slightly firmer bias G10 currencies. However, trading is quiet and mostly narrow ranges have dominated. North American leadership is sought, and range extension is likely. Most emerging market currencies, on the other hand, are firmer with a few exceptions, mostly from central Europe, and the Chinese yuan.
Asia Pacific bonds played catch-up with the decline in US yield yesterday. European bonds are paring yesterday's gains and yield are up 1-5 basis points. Some pressure may be coming from MSCI's decision not to include EU bonds from its sovereign index. The 10-year US Treasury yield is off one basis point to 4.30%. The US auctions $22 bln 30-year bonds today and $140 bln of bills. Near midday in NY, the Fed's Williams interviews Treasury Secretary Yellen. Turning to equities, there is a mixed performance today. In the Asia Pacific, most large markets advanced with Japan and China being notable exceptions. Europe's Stoxx 600 is giving back around half of yesterday's nearly 1.1% gain. The S&P 500 and NASDAQ gapped higher yesterday to new record before consolidating after the FOMC meeting. They are both trading with a firm bias today, especially the NASDAQ. Gold is trading softer and threatening to end the three-day correction during which it rose by about 1.3% after falling almost 3.5% after the US jobs report last Friday. It is off around $10 in European trading. August WTI is also softer after advancing in the past three sessions. It is about 1% lower, trading slightly below $77.50.........America
Today's PPI pales in comparison to yesterday's CPI and FOMC meeting. The CPI came in a little lower than expected and saw US yields completely unwind the employment induced gains. In fact, the two-year yield tumble by the most this year. The 16 bp drop took the yield below 4.70% for the first time in a little over two months but it settled back above following the FOMC conclusion. The 10-year yield dropped 13 bp to almost 4.26%, it low since April 1. It settled near 4.30%. The CPI measure that has taken on a special role in this cycle is the core services measure excluding shelter slipped (-0.04%) after averaging 0.5% in the previous three months. The three-month annualized headline pace of CPI eased below 3% for the first time since January, and the six-month annualized pace slowed to 3.2% from 3.6%....
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