NEW YORK: The dollar weakened and government bond yields fell to multi-week lows on Friday after a benign reading of U.S. inflation in June and soft retail demand raised doubts the Federal Reserve would increase interest rates later this year.
The Dow and S&P 500 both closed at new records while gauges of global stock markets also scaled fresh highs, capping their best week in more than two months. Oil prices rose 1 percent.
The U.S. consumer price index increased 1.6 percent, the smallest gain since October 2016, after rising 1.9 percent in May, the Labor Department said. Year-on-year CPI has been softening steadily since February, when it hit 2.7 percent.
The CPI's drop of 0.1 percent in May and the lack of a rebound last month could trouble Fed officials who have largely viewed a recent moderation in price pressures as temporary.
"The CPI data begs the question, at what point does transitory becomes something that is more sustained, in terms of the softness," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York.
U.S. interest rates futures rose as traders pared their viewthe Fed would increase rates again in 2017. The dollar index <.DXY>, which tracks the greenback against six major rivals, slid 0.64 percent to 95.113 after earlier falling to 95.100, its lowest since September 2016. The drop came after the U.S. data raised doubts about U.S. economic growth and whether the Fed will hike rates again this year.
"This cements the weaker trend in the dollar and lower U.S. yields and I think this story has got legs," Franulovich said.
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 New York for brokerage Savills Studley, a unit of Savills Plc <SVS.L>.
The data indicates "a little bit of concern about how the Fed is going to normalize policy," Learner said.
U.S. Treasury yields dropped to multi-week lows as the benign inflation data and unexpected fall in retail sales fuelled doubts about an interest rate increase later this year.
The benchmark 10-year U.S. Treasury note <US10YT=RR> rose 6/32 in price to yield 2.3248 percent. The German 10-year yield fell as much as 4 basis points to 0.49 percent, before paring declines to about 0.53 percent at the end of day.
The euro <EUR=> gained 0.64 percent to $1.468. The Japanese yen strengthened 0.65 percent versus the greenback at 112.53 per dollar, while the Mexican peso gained 0.48 percent and the Canadian dollar rose 0.58 percent versus the greenback.
Stock markets, meanwhile, marched higher. MSCI's gauge of equity performance in 47 countries <.MIWD00000PUS> gained 0.65 percent, and its world index <.WORLD> rose 0.64 percent. The pan-European FTSEurofirst 300 index <.FTEU3> of leading shares rebounded to rise 0.10 percent and close at 1520.41.
The Dow Jones Industrial Average <.DJI> rose 84.65 points, or 0.39 percent, to 21,637.74. The S&P 500 <.SPX> gained 11.44 points, or 0.47 percent, to 2,459.27 and the Nasdaq Composite <.IXIC> added 38.03 points, or 0.61 percent, to 6,312.47.
Ten of the 11 major S&P sectors rose, with information technology <.SPLRCT> up 0.89 percent to lead the advancers.
For the week, the S&P rose 1.4 percent, the Dow 1.05 percent and the Nasdaq 2.6 percent, it's biggest weekly gain in 2017.
Shares of JPMorgan <JPM.N>, Citigroup <C.N> and Wells Fargo <WFC.N>, which have run up in recent weeks, were among the top five biggest drags on the S&P 500 as their earnings reports failed to excite investors.
A supply interruption in Nigeria boosted crude oil and prices posted a weekly gain of more than 4 percent on lower U.S. stockpiles.
Brent crude futures <LCOc1>, the international benchmark for oil, settled up 49 cents at $48.91 per barrel.
U.S. West Texas Intermediate (WTI) crude futures <CLc1> rose 46 cents to settle at $46.54 per barrel.
Meanwhile Britain's major share index faltered on Friday, cutting its weekly gain from a global rally after U.S. Fed officials hinted monetary policy tightening would go ahead at a slower pace.
The FTSE 100 <.FTSE> fell 0.5 percent, underperforming mid-caps <.FTMC> and taking weekly gains to a narrow 0.2 percent.
The more defensives-heavy index suffers when expectations of monetary policy tightening dampen. European stocks on the other hand enjoyed their best week in more than two months.
Defensive housebuilding stocks such as Barratt Development <BDEV.L> and Persimmon <PSN.L> were among the top blue-chip fallers.
Drugmaker AstraZeneca <AZN.L> continued Thursday's slide, down 1.6 percent due to uncertainty around reports that CEO Pascal Soriot was preparing to leave the company.
As spokespeople declined to comment on the report, the combined two-day share drop wiped more than 3 billion pounds off Astra's market value.
Firmer metals prices underpinned gains on mining stocks, with Anglo American <AAL.L> and Fresnillo <FRES.L> top of the blue-chips.
Anglo American, with considerable South Africa exposure, also benefited from the country suspending implementation of a new mining law which analysts had said could negatively impact firms.
Royal Mail <RMG.L> shares fell 2.4 percent after it replaced its pension plan, giving employees a choice between defined benefit or contribution pension scheme after opposition from trade unions.
Among mid-caps, Carillion <CLLN.L> saw a small relief bounce from heavy losses this week, rising 1.3 percent after the crisis-hit construction and support services contractor hired HSBC as joint financial adviser and corporate broker, amid speculation it is preparing a rights issue.
Despite the slight relief, the firm was left with 70 percent less market value than at the start of the week. "A lot of our clients cut their positions on the first day and we haven't seen further flows in the stock after that," said a trader.
Property firm Derwent London <DLN.L> was among top European gainers, up 3.4 percent after Exane BNP Paribas raised the stock to an "outperform" rating, citing the firm's "defensive" rents and strong pipeline. It expressed optimism about the prospects for a sector seen as particularly vulnerable to Brexit.
"Values in the London office market have barely moved post-Brexit [vote] thanks to abundant investment market liquidity (particularly from Asia) and resilient take-up," its analysts said in a note, adding that firms have recycled capital, deleveraged and payed special dividends.
Exane analysts forecast an average 8 percent decline in London office rents by 2019 - "a gradual weakening rather than a sharp correction", as they put it.
Emerging markets-focused asset manager Ashmore <ASHM.L> fell after reporting a 5 percent rise in its fourth-quarter assets, boosted by new client cash. Despite the results being in line with forecasts, the shares slid 2.2 percent to the bottom of the mid-caps.
"This was Ashmore's second consecutive quarter of inflows, marking the first time since 2013," UBS analysts said in a note.
"That said, due to the increase in the GBP/USD rate during the quarter, the growth of assets under management measured in sterling was a more moderate 1.1 percent quarter-on-quarter."