Friday’s two major U.S. economic reports drew attention to weak consumer inflation and a widening trade gap.

U.S. consumer inflation for June came in at just 0.1%, in line with analysts expectations. The U.S. trade gap increased in May to US$37.6 billion due to increased imports of cars, clothes and TVs.

BMO Nesbitt Burns says that the 0.1% CPI reading “will likely underpin low bond yields and, indirectly, provide some support for sagging stocks”.

“It is still a tad too soon to declare victory on a declining core inflation trend. However, that development is well underway and is logically to be expected at this stage of the business cycle. A further cooling would be great news for policymakers in the months ahead,” BMO says. “Fed officials are smiling. Ditto bond buyers. This is good news for equity investors as well. With low inflation cementing bond yields, stock prices should get some needed support.”

RBC Financial says that the tame CPI numbers in the U.S., “adds a measure of support to our view that the Canadian dollar will appreciate in the months ahead. Expectations of Fed rate hikes are likely to be pushed out further by investors, supporting higher interest rates in Canada relative to the U.S. — a plus for the Canadian dollar.”

Meanwhile, U.S. imports jumped 1.8% in May, outpacing a 0.7% rise in exports, leaving the trade gap at a record US$37.64 billion. CIBC World Markets notes that this is a much wider deficit than consensus expectations. “The trade sector will represent a key drag on Q2 growth, in line with our expectations that a good deal of the inventory rebuilding will be absorbed by imports rather than domestic production. The weak trade balance, coupled with a less-than-attractive U.S. capital market, underscores a still-bearish outlook for the U.S. dollar, with several cents more to go against the euro.”