US Consumer Prices Unchanged In June Amid Falling Energy Prices

Dollar Drops and Stocks Surge as Yellen Echoes the'Fed Put

U.S. Treasurys saw early buying Friday, driving yields firmly lower, as a weak report on retail sales and inflation raised fresh questions about the pace of the Federal Reserve's plans to normalize monetary policy by lifting rates and shrinking its asset portfolio.

Data from the Labor Department showed that consumer price index was flat in June after edging down by 0.1% in May.

Excluding the volatile food and energy categories, prices rose 0.1 percent in June and 1.7 percent from a year earlier.

Compared to a year ago, overall consumer price inflation is up 1.6%, the smallest gain since October.

Traders will also be looking at the United States consumer price index (CPI) data as the next important inflection point with year-on-year inflation rate estimated to decline for a fourth consecutive month by 1.7 percent in June following a similar gain in May, it would also be the lowest since November 2016.

Wall Street expected a 0.1% gain in overall retail sales and a 0.2% rise ex-autos.

EARNINGS WATCH: Companies in the US and in Asia will begin reporting their quarterly financial results and give their earnings forecasts for upcoming quarters next week. The core CPI increased 1.7% year-on-year - still short of the Fed's 2% target.

The euro gained 0.64 per cent to US$1.468 (RM6.28).

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. "After their June rate hike, the Fed is seen watching inflation trends carefully before tightening policy again. 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.

The annualised rate of inflation in several CPI components over the past three months showed declines of 4.9 percent in apparel, 5.5 percent in used cars and trucks and 4.1 percent in professional services, said Heidi Learner, chief economist in NY for brokerage Savills Studley, a unit of Savills Plc SVS.L .

UK's benchmark FTSE 100 closed down by 0.7 percent, the pan-European FTSEurofirst 300 ended the day down by 0.01 percent, Germany's Dax ended down by 0.2 percent, France's CAC finished the day down by 0.1 percent.

The US dollar index, which tracks the greenback against a basket of six major rivals, was at 95.18, compared to 95.41 ahead of the report.

The New Zealand dollar held onto its overnight gains but was headed for a 0.8 percent weekly decline as investors await several U.S. economic indicators, including inflation numbers.

While we may not be hearing from many central bankers during today's session - Fed's Robert Kaplan the only policy maker due to make an appearance - it is likely that focus will remain on the Fed as we get some important USA economic data. Core prices had been expected to rise by 0.2%.

The US dollar remained broadly on the back foot against major currencies.

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