Bond Prices Rise After Strong 30-Year Auction

US stocks opened just slightly higher overnight but rallied throughout the session to close with a substantial gain. The Dow Jones was up 205 points (0.8%) to close at a new record high. Bond yields retreated slightly as a strong auction of new 30-year bonds in the US helped push yields down. Yields were also depressed by an announcement from China's FX authority that yesterdays announcement about China slowing down or stopping treasury purchases was inaccurate.

Gold prices rallied back towards three-month highs overnight while silver is still just below six-week highs. The US producer price index (PPI) came out at -0.1% overnight, well below the 0.2% rise expected and a sign that price pressures in the US are still weak. The federal reserve will be much more reluctant to raise rates if inflation doesn't pick up and producer prices are seen as a leading indicator for the more widely watched CPI (consumer price index). This data may have been one reason for the increased gold price. US CPI data will be released tonight.  

The AUD has been strong recently and is now almost back at US$0.79. A much better than expected retail sales report yesterday gave a boost to the currency (as well as to retail stocks). Retail sales rose 1.2% for the month of November which was much higher than the 0.4% expected. In fact, such a high monthly growth rate hasn't been seen since 2014.  

Data Releases:

–    China Trade Balance 12:00pm AEDT

–    US CPI 12:30am AEDT

–    US Retail Sales 12:30am AEDT

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This article was written by William O'Loughlin – Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via william.oloughlin@rivkin.com.au or by phoning +612 8302 3633.