Inflation fever breaks and we are loving it [Video]

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.