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Falling Yields Intensify Recession Concerns, Stocks Tumble

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Equities       

Major US stock index futures finished lower on Tuesday as the yield curve inverted to its worst level since 2007. The recent inversion is adding to investors' woes over the economic performance, as historically, a yield curve inversion was a clear warning for a coming recession. The trade tensions between China and the United States, the Brexit Saga, and the clear slowdown in the economic activity in the Euro region forced investors to safe investments. The yield on the 2-year Treasury note was five basis points above the 10-year yields after Monday's close. Moreover, the 3-month Treasury yield closed above the 30-year bond yield for the first time since 2007, as the latter dropped to 1.931%, slightly above its all-time low. Market participants are giving more focus to the ongoing bond auctions for further insights on the bond market performance. Although the CB consumer confidence remained close to its highest level since 2000, the Dow Jones Industrial Average declined to 25711, the S&P500 futures tumbled to 2865, and the Nasdaq futures plunged to 7537.

USD

The dollar index, which measures the greenback against a basket of major currencies held steady above 98 as market participants await fresh fundamental drivers. The recent drop in yields is raising the chances of aggressive monetary policy easing measures by the Federal Reserve in the coming meetings. However, the strong US economic outlook relative to rivals kept the dollar at the bid. The dollar was solid against commodity currencies, where the AUDUSD dropped to 0.6739, the NZDUSD dived to 0.6326, the lowest in almost four years, and the USDCAD rose to 1.3310. Meanwhile, the EURUSD dipped to $1.1084.

Metals

Gold prices inched higher as the US yields extended losses, raising investors’ fears of an upcoming recession. The previous metal is finding support from the fact that central banks are shifting their monetary policy stance from tightening to easing, and the trade tensions between China and the United States. The price of a gold ounce rose to $1545, the price of a silver ounce soared to $18.32, the highest since April 2017, driving the XAUXAG ratio to 84.02, the lowest since March.

Oil

Oil prices edged higher as US crude inventories dropped. The American Petroleum Institute reported that the weekly crude oil stock fell by 11.100 million barrels last week, the largest drop since January 2018. Market participants are looking forward to the official numbers by the US Energy Information Administration later today. The West Texas Intermediate crude futures rose to $55.66, and Brent futures climbed to a high of $60.13.

Major Economic Events

GMT Country Event Expectation Previous

14:30

US

Crude Oil Inventories

-2.112

-2.700


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