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The Federal Reserve (Fed) doves got a big energy boost yesterday by a slightly lower-than-expected inflation report. The US stocks and bonds rallied, and the US dollar took a severe hit. Good news came from Britain this morning, as well. Inflation in the UK fell more than penciled in by analysts. All in all, there is growing evidence that the major central banks’ efforts are bearing fruit.

Moving forward, yesterday’s rush to open fresh long US Treasury positions was likely intensified by a hurry to cover short positions. We shall see a correction in the US yields, as the Fed members still maintain their position for ‘higher for longer’ interest rates.

Today, investors will watch the US retail sales data. A strong figure could pour cold water on heated Fed cut bets. Home Depot shares rallied more than 5% yesterday. Target is due to report today, and Walmart on Thursday.

Finally, to add another layer of complexity – on top of the economic data and corporate earnings – the US political scene will impact bond pricing in the next few days. The US politicians try to avoid a government shutdown by Friday, but political risks are hanging in the air.

 

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This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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