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Softer US inflation and sentiment lift stocks, but front-end yields reprice

July retail sales fell 0.6% and August consumer sentiment slipped to 51, driving the two-year Treasury yield briefly below 4.10% as rate-hike odds cooled.

Reported · Written up by our desk · Major Pairs

US stocks hit fresh highs after two cooling inflation-linked readings, with the S&P 500 crossing 7,800 for the first time, according to FXStreet. The market took a more optimistic view on Thursday, while Friday morning offered detail on where the cooling was coming from.

FXStreet cited a July retail sales contraction of 0.6% versus a 0.1% consensus gain, plus declines across related measures. Retail sales excluding autos fell 0.3% against a 0.2% forecast, and the GDP “control group” that feeds the consumption estimate dropped 0.4% after rising 0.4% the prior month. Preliminary August consumer sentiment fell to 51 versus a 54.5 consensus, with the expectations component dropping to 50.6 from 55.4.

Bond pricing shifted in response, as short-dated Treasuries reflected a front-end recalibration rather than a broad move across the curve. The two-year yield traded briefly beneath 4.10%, its lowest since June 30, while 10-year and 30-year yields were marginally higher.

FXStreet also tied the pattern to the outlook for Federal Reserve policy, saying the weaker consumer data suggested the Committee could be halted by demand before inflation is fully satisfied. The note added that year-end equity targets discussed this week rely on specific conditions, including the Fed staying on hold and crude oil holding above $80 with the Strait of Hormuz still shut.

Latest closeWTI crude $82.40 ▲1.4%|S&P 500 7,785.76 ▼0.2%

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