It was another painfully low-volume overnight session, which however did not prevent global stocks from hitting another record highs, capping their best week in over two months as the dollar stayed close to nine-month lows following Yellen’s dovish retreat in which she noted caution on persistently low inflation (hence today’s CPI print will be especially important) as odds of future rate hikes in 2017 and 2018 dropped.

“(The Fed comments) add to our conviction that no further Fed hike should be expected for the rest of the year, which should prove reassuring for markets concerned about excessive tightening risk globally,” Mizuho’s head of euro rates strategy Peter Chatwell said in London.

European equity markets trade broadly flat, FTSE 100 underperforms with healthcare sector lagging as uncertainty on AstraZeneca (-1.6%) CEO grows. The pan-European STOXX 600 index inched up 0.1%, adding to earlier gains on stock markets in Asia that took MSCI’s world stock index to an all-time high. European shares were poised for their best week since late April as investors piled back into the Stoxx 600, though moves on indexes on Friday were largely muted for now.

Earlier, Japan’s Nikkei added 0.2%, poised for a weekly rise of just over 1 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent to its highest level in two years.

S&P 500 index futures were little changed after financial shares led gains yesterday with three large banks slated to deliver earnings Friday, although all eyes will be on today’s CPI print for validation of Yellen’s recent dovishness.

Leading into today’s US CPI print yesterday’s PPI report in the US was a bit of a mixed bag. Headline PPI rose +0.1% mom in June which was a tenth ahead of expectations however base effects have seen the annual rate slip to +2.0% yoy from +2.4%. The more significant core (ex food and energy) reading rose +0.1% mom which was a slight miss (+0.2% expected). That puts the annual rate now at +1.9% yoy and down from +2.1% in May (which was the highest since May 2014). Of note in the report was healthcare costs which rose a fairly modest +0.1% mom. This should point to a similar rise in the component for the PCE  deflator.

DB economists expect headline and core CPI to have risen +0.1% mom and +0.2% mom respectively which is also in line with the market consensus. Should their forecast be close to the mark then the year over year growth rate of core CPI would rise a tenth to +1.8% which would be mildly positive for dovish-leaning policymakers fretting about recent soft inflation. That would also be one-tenth ahead of the consensus. However it is worth noting that core CPI has missed expectations for the last three months and the 3m average surprise has dropped to the lowest (-0.17%) since June 2005 (when it was the same level). So it’ll be interesting to see if today bucks the trend.

Bonds posted a modest rebound while US stock futures were marginally in the red ahead of a US data deluge which includes the start of earnings season when JPM, Wells and PNC post Q2 results, coupled with data deluge from the US including inflation data, retail sales, industrial production and UMich consumer confidence.

Stocks weren’t the only thing to benefit from Yellen’s dovishness: treasuries headed for their first weekly gain in three while Bunds rose for the first day in four. Likewise in Europe, bonds rebounded after yields bounced in the past few weeks in the euro zone on rising expectations that the European Central Bank is set to wind down its asset purchase program.  The German 10-year yield fell some 3 basis points when European trading started on Friday to 0.50%, moving away from an 18-month high hit earlier this week of 0.583 percent.

The Bloomberg Dollar Spot Index fell for the fifth day, its longest streak of losses in two months and set for another weekly decline, near the lowest level since September 2016. The dovish signals from the Fed also pressured the broader DXY index on Thursday and it stayed close to that trough, inching down 0.1 percent on the day.  The yen was on the back foot against high-yielding currencies such as the Australian dollar as the VIX index drifted lower and provided a boost to carry trades. There was some excitement in FX land where the AUD/USD pushed to a new YTD high with similar price action observed in EUR/CHF which also hits YTD high as CHF weakened across the board. The euro was up 0.1 percent at $1.1415 and was set to end the week flat.

“The latest comments from Yellen and others suggest that interest rates will rise very gently, and that is supportive for high-yielding currencies for now,” said Viraj Patel, an FX strategist at ING Bank in London.

A quick recap of overnight trading sessions courtesy of Bloomberg:

• ASIA: BOJ may be allowing more room for shorter-maturity bond yields to rise as long as 10-year stays in preferred range. Australian dollar bulls find support from widening yield gap between nation’s bonds and USTs. AUD/USD extends weekly gain to over 2%, biggest in four months
• EUROPE: Implied probability of EUR/USD hitting fresh high at 1.15 by July 20 has almost halved since Fed chair Janet Yellen’s Congress testimony. Strong open for core euro-area bonds, with wave of short-covering demand pushing bunds higher. German 10y outperforms USTs, though volumes in futures are poor.

In commodities, Brent, WTI edged higher for the fifth day as Shell declared force majeure on Nigeria’s Bonny Light crude exports, as the market looks ahead to rig count data later on Friday. “We have the rig count later today, so it will be interesting to see if that drop two weeks ago was a one-off, or if we are seeing signs of stabilization,” says Jens Pedersen, senior analyst at Danske Bank, adding that the market is stabilizing after “a bumpy week” in which prices fluctuated on OPEC, EIA and IEA reports. “We have some interesting U.S. key figures due this afternoon which could move the dollar,” including inflation data, Pedersen said. Gold was steady at $1,217.32 an ounce, heading for a half-percent gain for the week.

Bulletin Headline Summary from RanSquawk

• Asian equities traded with little in the way of firm direction as markets await a slew of tier 1 US data releases later in the session
• FX markets also traded in a tentative manner with outflows from safe-haven JPY & CHF, as AUD/USD breaks 2017 highs
• Looking ahead, highlights include US CPI, retail sales, industrial output, Uni. Of Michigan and Fed’s Kaplan

Market Snapshot

• S&P 500 futures down 0.1% to 2,443.00
• STOXX Europe 600 up 0.09% to 386.47
• MXAP up 0.4% to 156.80
• MXAPJ up 0.3% to 516.95
• Nikkei up 0.09% to 20,118.86
• Topix up 0.4% to 1,625.48
• Hang Seng Index up 0.2% to 26,389.23
• Shanghai Composite up 0.1% to 3,222.42
• Sensex down 0.2% to 31,988.18
• Australia S&P/ASX 200 up 0.5% to 5,765.12
• Kospi up 0.2% to 2,414.63
• German 10Y yield fell 2.4 bps to 0.579%
• Euro up 0.1% to 1.1411 per US$
• Brent Futures down 0.1% to $48.35/bbl
• Italian 10Y yield rose 7.1 bps to 2.035%
• Spanish 10Y yield fell 5.0 bps to 1.655%
• Brent Futures down 0.1% to $48.35/bbl
• Gold spot up 0.05% to $1,218.21
• U.S. Dollar Index unchanged at 95.72

Top Overnight News

• ECB is wary of putting an end date on its QE program; any changes remain data dependent with a special focus on wages according to people familiar: Reuters
• Trump vows to curb steel dumping; considers import tariffs and quotas
• U.K. accepts for first time the necessity of a financial settlement for leaving the EU
• Telegraph: conservative MPs are in talks with Labour about signing-up the U.K. to free movement of people after Brexit
• Republican Health Bill Draft May Be Destined for Another Rewrite
• Asia’s Biggest Buyout Sees GIC-Backed Firm Get $11.6 Billion
• Macron Woos Trump With Parisian Splendor in European Lesson
• Trump May Have to Use Obama’s Secret Debt Plan, Worrying Markets
• Europe Car-Sales Growth Slows on Brexit Effect Amid Market Peak
• PPG Sticks With European Brand Overhaul After Dulux Dog Bolts
• As ‘Game of Thrones’ Comes Roaring Back, HBO Retrenches Online
• BP Spill-Loss Investors Can Seek Damages on Shares Not Sold
• Big Oil Just Woke Up to the Threat of Rising Electric Car Demand
• China Small Caps Tumble in Worst Week in a Year on Earnings Woes
• EdgePoint Undecided on How to Vote on Huntsman-Clariant Deal
• Cogeco Communications Third Quarter EPS Beats Highest Estimate
• Blavatnik’s Netflix of Sports Is Said to Target Canada Expansion
• Biocon Says FDA Oncologic DAC Favors Nod for Proposed Biosimilar
• Richemont Head of Watchmaking Leaves Four Months Into Job
• Senate Bill Would Expand Program to Cover Self- Driving Cars

Asia equity markets traded mixed amid a lack of drivers and relatively quiet news flow, although the region’s major bourses mostly kept afloat and adhered to the momentum from US where financials outperformed ahead of earnings releases from major banks. ASX 200 (+0.49%) and Nikkei 225 (+0.09%) were both in the green as gains in energy led the advances in Australia, while upside in Nikkei 225 was capped by weakness in index heavyweight Fast Retailing after the Co. missed on Q3 results. Hang Seng (+0.16%) and Shanghai Comp. (+0.13%) were mixed despite the PBoC conducting open market operations via a CNY 100bIn injection, as this still amounted to a weekly net drain. Japanese yields were higher across the curve following a similar unwinding of the dovish rally in USTs, while a somewhat positive risk tone in Japan also contributed to the lack of demand for JGBs. Fitch affirmed China sovereign rating at A+; outlook stable. PBoC injected CNY 100bIn through 7-day reverse repos, for a net weekly drain of CNY 70bIn vs. CNY 250b1n drain last week. PBoC set the CNY midpoint at 6.7774 vs. Prey. 6.7802.

• Top Asia News
• Anbang’s Fall Ends Wild Chapter in China Insurance Industry
• Singapore’s Economy Rebounds in Second Quarter to Expand 0.4%
• India Wholesale Prices Rise 0.9% in June; Est. 1.39%
• Hangzhou Hikvision Cut by UBS as Positive News Seen Priced In
• Vanke May Become Major Shareholder of GLP, Co. Says
• Hong Kong Court Ousts Four Lawmakers, in Victory for China
• Global Logistic Properties Soars After Chinese Consortium Deal
• Carmakers, Banks, Machinery Exporters Lift Topix as Yen Retreats
• The Hottest Commodity in China May Start to Cool Before Long

European bourses trade mixed, as position taking has slowed following the risk appetite seen through yesterday’s trade. Sectors trade mixed, with no real out or under performance. The healthcare sector did open on the back foot with pre-market reports stating that AstraZeneca may be close to issuing a profit warning, however, recovery was seen in the sector, as buying was seen in Shire, now up 1.40%. Yields rose throughout yesterday’s US session amid the risk tone, filtering into European futures as the lOy bund trades once again firmly above the 0.50bps level. European paper did see a bid into the open, as Gilts gapped up. Bunds also extended on the opening bid, with OATs continuing to out-perform in the week.

Top European News

• A $95 Billion Danish Fund Bets Robots Can Defy Market Correction
• Shell Is Said to Put 17% Stake in Comgas Up for Sale: Estado
• SEB Beats Estimates as Commission and Lending Income Pick Up
• Santander Offers Loyalty Bond Plan to Banco Popular Clients
• Skanska Says Project Writedowns in U.S., U.K. to Weigh on Profit

In currencies, dollar traders awaited the slew of US tier 1 data expected at 8:30 ET, with risk could very much be to the USD upside, as the greenback has been hit following a slightly unexpected pessimistic tone toward the US economy from Chair Yellen. AUD/USD did see some bullish pressure as Europeans got to their desks, we reside around the top of 2016/2017 highs, with a break through 0.7835 could indicate a firm change in long-term AUD/USD direction. The franc has also struggled amid the move from risk assets, losing ground against EUR and USD this EU morning, with a USD/CHF reversal possible, as markets attempt to break the week highs around 0.9700. EUR/CHF has been a big talking point of late, with the EUR strength clear in the pair, the pair did break through 1.10 this week, with next key resistance at 1.12 (Post floor highs).

In commodities, commodity markets have been subdued throughout Asian and European trade with oil holding onto the gains seen yesterday amid nothing fundamental, with USD 45.00/bbl; a clear support level in WTI. The precious metals sector did give back some of its week gains throughout Asian trade, yet Gold did see a bounce with bids clear as we approached USD 1215.00. The yellow gold remains up around 0.40% for the week, gaining on Fed Chair Yellen’s less than hawkish testimony tone, as silver underperforms.

Looking at the day ahead, all eyes turn to the bumper session scheduled for the US. The June CPI report will likely be front and centre, while at the same time we’ll also receive the important June retail sales report where the consensus is for a small +0.1% mom rise in headline sales but +0.4% mom rise in the core ex auto and gas print. Following that we’ll get the June industrial (+0.3% mom expected) and manufacturing (+0.2% mom expected) production prints before we end the day with the preliminary July University of Michigan consumer sentiment print (expected to hold steady) and May business inventories. Away from the data we are due to hear from the Fed’s Kaplan again (8.30am ET) while the Chicago Fed’s Evans’ speech – which was due to be held yesterday but got cancelled – will be posted later today. As noted earlier also, keep an eye on earnings from JP Morgan, Wells Fargo and Citi, as well as any headlines which may emerge from Trump’s meeting with Macron.

US Event Calendar

• 8:30am: US CPI MoM, est. 0.1%, prior -0.1%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
  • CPI YoY, est. 1.7%, prior 1.9%; CPI Ex Food and Energy YoY, est. 1.7%, prior 1.7%
• 8:30am: Real Avg Weekly Earnings YoY, prior 0.58%; Real Avg Hourly Earning YoY, prior 0.6%
• 8:30am: Retail Sales Advance MoM, est. 0.1%, prior -0.3%; Ex Auto MoM, est. 0.2%, prior -0.3%; Ex Auto and Gas, est. 0.4%, prior 0.0%
• 9:15am: Industrial Production MoM, est. 0.3%, prior 0.0%; Capacity Utilization, est. 76.8%, prior 76.6%l; Manufacturing (SIC) Production, est. 0.2%, prior -0.4%
• 9:30am: Fed’s Kaplan Speaks in Mexico City
  10am: U. of Mich. Sentiment, est. 95, prior 95.1; Mich. Current Conditions, est. 112, prior 112.5; Mich. Expectations, est. 84.4, prior 83.9
• 10am: Business Inventories, est. 0.3%, prior -0.2%
• 1pm: Chicago Fed to Post Evan’s Speech on Website

DB’s Jim Reid concludes the overnight wrap

Maybe in a few months we’ll also fondly remember when central bankers weren’t talking much. That’s all changed of late and it’s certainly been a see-sawing three weeks if you’re a central bank watcher with lots of unpredictable headlines and comments.Yesterday had even more ups and downs as the morning session saw the ECB’s Rimsevics suggest QE will continue for a ‘few years’, followed by news that Draghi will speak at the Jackson Hole Symposium on August 24-26th in what will be his first visit for 3 years. So cancel your holidays or in my case ask my wife to hold the twins in for a few more days given that’s pretty much when she’ll be full term. To be fair Rimsevic’s comments were vague but fitted the morning mood of a bond rally but the Draghi news then stole the attention with discussion that the last time he spoke at the event he prepared the ground for QE. So the expectation yesterday was that his appearance will be preparing the ground for a further taper announcement (for January 2018) just two weeks later at their September 7th meeting.

As we approach the summer holidays that speech is likely to be a big event for markets. As noted above the prospect of it contributed to a choppy day for rates yesterday and while yields generally closed 2bps (in  the case of Bunds and OATs) to 8bps (in the case of peripherals) higher, the intraday ranges were much more impressive. 10y Bunds saw a range 6.1bps, OATs 7.4bps, BTPs 10.6bps, Spanish govies 10.4bps and Portuguese govies 11.3bps. Gilts (7.4bps) and Treasuries (6.1bps) also joined in while the Euro – which eventually ended a shade weaker – traded in a 0.74% range. It’s worth noting that yields were also sharply higher across the Swedish curve (2y and 10y +4.7bps) following an unexpected jump in underlying CPI in June (+0.1% mom vs. -0.1% expected) which briefly put the spotlight back on the Riksbank. It’s worth adding that there were no final surprises in the last revisions to June CPI for either Germany (+0.2% mom and +1.5% yoy) or France (0.0% mom and +0.8% yoy).

Moves weren’t quite so emphatic for equities but nonetheless it was another positive day for risk. Yellen’s testimony in front of the Senate was largely a repeat of her Wednesday speech although at the margin she was perhaps slightly less dovish on inflation, calling risks to prices being “two-sided”. The S&P 500 ended last night up +0.19% while the Dow finished +0.10% and in the process notched up a new record high. It’s worth noting that the Fed’s Brainard became the latest Fed official to say that asset valuations “look a bit stretched” in comments yesterday however it mostly appeared to be shrugged off. Meanwhile closer to home the Stoxx 600 finished +0.32% and it’s worth noting that the twoday gain for the index of +1.84% is the best since the 24th and 25th of April.

This morning in Asia bourses are mostly finishing the week on the front foot without there being too much movement or volumes. Chinese stocks are slightly lower but the rest of the region is slightly higher as we go to print. Despite not much going on, Asian stocks look set to complete their best week since March.

Moving on. After a quiet start to the week which only really got going post Yellen on Wednesday, we’re ending today in the US with some very significant data in the form of the June CPI report. Our US economists expected headline and core CPI to have risen +0.1% mom and +0.2% mom respectively which is also in  line with the market consensus. Should their forecast be close to the mark then the year over year growth rate of core CPI would rise a tenth to +1.8% which would be mildly positive for dovish-leaning policymakers fretting about recent soft inflation. That would also be one-tenth ahead of the consensus. However it is worth noting that core CPI has missed expectations for the last three months and the 3m average surprise has dropped to the lowest (-0.17%) since June 2005 (when it was the same level). So it’ll be interesting to see if today bucks the trend.

While that data is likely to be the number one focus for markets, it’s also pointing out that today will also see US earnings start to ramp up with JP Morgan, Citi and Wells Fargo all scheduled to report either at or prior to the open. So that will be worth a watch. President Trump is also due to meet his French counterpart Emmanuel Macron today while attending Bastille Day celebrations. The meeting is expected to be more than just ceremonial duties so worth also keeping an eye on that to see if interesting headlines emerge. All eyes also on the handshake!!

Leading into today’s US CPI print then, yesterday’s PPI report in the US was a bit of a mixed bag. Headline PPI rose +0.1% mom in June which was a tenth ahead of expectations however base effects have seen the annual rate slip to +2.0% yoy from +2.4%. The more significant core (ex food and energy) reading rose +0.1% mom which was a slight miss (+0.2% expected). That puts the annual rate now at +1.9% yoy and down from +2.1% in May (which was the highest since May 2014). Of note in the report was healthcare costs which rose a fairly modest +0.1% mom. This should point to a similar rise in the component for the PCE  deflator. The rest of the data in the US yesterday was a relative sideshow. Initial jobless claims fell to 247k from 250k while the monthly budget statement for June revealed a wider than expected deficit of $90.2bn.

Before we wrap up, a quick mention that Bloomberg is reporting that 2 Republican senators have rejected the Republican’s latest version of the health care bill released yesterday. A few also remain undecided still and are waiting to see the CBO’s analysis next week. As a reminder the Republicans can only afford to lose 2 votes and no more based on their narrow majority.

Looking at the day ahead, this morning in Europe it is fairly quiet with only the Euro area trade balance reading for May due. All eyes then turn to the bumper session scheduled for the US this afternoon. The aforementioned June CPI report will likely be front and centre, while at the same time we’ll also receive the important June retail sales report where the consensus is for a small +0.1% mom rise in headline sales but +0.4% mom rise in the core ex auto and gas print. Following that we’ll get the June industrial (+0.3% mom expected) and manufacturing (+0.2% mom expected) production prints before we end the day with the preliminary July University of Michigan consumer sentiment print (expected to hold steady) and May business inventories. Away from the data we are due to hear from the Fed’s Kaplan again (2.30pm BST) while the Chicago Fed’s Evans’ speech – which was due to be held yesterday but got cancelled – will be posted later this evening. As noted earlier also, keep an eye on earnings from JP Morgan, Wells Fargo and Citi, as well as any headlines which may emerge from Trump’s meeting with Macron.

Finally, a quick mention that first thing Monday morning we get the latest data dump in China including Q2 GDP (6.8% expected), industrial production and retail sales. So we’ll have a full recap of that in Monday’s EMR. Also as Monday’s EMR goes to print the world will have just seen the premier to the new series of Game of Thrones. How very exciting!!!