Global financial markets in brief Week June 20
According to the Arab Federation of Capital Markets, over the previous week, US government debt prices jumped with the yield on the 10-year US Treasury note falling to its lowest level in two weeks, after a sharp slowdown in Eurozone business activity intensified fears about the health of the global economy and testimony from the chair of the Federal Reserve in which he acknowledged the possibility that the US could be headed towards recession. However, growth fears dragged on commodities. Copper, a bellwether for economic output, is down more than 7% for the week, oil also fell to below $110 a barrel, while benchmark grain prices sank with Chicago wheat off nearly 9% for the week and at its lowest since March, while gold prices hitting a one-week low of $1,821 over the last week.
10-year US Treasury yields back to below 3.2% on recessionary fears
US Treasury yields were lower on Wednesday as risk-off sentiment returned to global markets, with mounting concerns over a possible recession weighing on investor sentiment in recent weeks since investors are increasingly concerned about the aggressive monetary tightening that could tip the U.S. economy into a recession. In fact, Federal Reserve Chairman Jerome Powell on Wednesday told Congress the central bank is “strongly committed” to curbing inflation which is running at a 40-year high. `U.S. Treasury yields were higher on Friday, but closed down for the week, as market participants assessed the prospect of major central banks implementing further interest rate hikes to curb soaring inflation. The yield on the benchmark 10-year Treasury note was trading higher at 3.13%, down from last Friday’s close of 3.23%. Meanwhile, the yield on the 30-year Treasury bond rose around 8 basis points to 3.26%, compared to last Friday’s close of 3.28%.
The US dollar slipped against its major peers on Friday, on course for its first weekly decline this month as investors assess the path for Federal Reserve policy and whether aggressive rate hikes would trigger a recession while hovering just below a two-decade high against a basket of major currencies. The US dollar index, which measures the greenback against six rivals, edged down to 104.3 in the Asian morning. It fell back from a tiny rise the previous day that was driven mostly by a decline in the euro after weak European factory data reduced bets for European Central Bank tightening. Against the yen, which is extremely sensitive to changes in U.S. yields, the dollar eased to 134.795. The euro ticked up to $1.053, but after tumbling 0.4% overnight after weaker-than-expected German and French PMI figures.
In parallel, the International Monetary Fund on Friday slashed its U.S. economic growth forecast as aggressive Federal Reserve interest rate hikes cool demand but predicted that the United States would “narrowly” avoid a recession. In an annual assessment of U.S. economic policies, the IMF said it now expects US Gross Domestic Product to grow 2.9% in 2022, less than its most recent forecast of 3.7% in April. For 2023, the IMF cut its US growth forecast to 1.7% from 2.3% and it now expects growth to trough at 0.8% in 2024.
On another hand, stocks were both for their first weekly gain in a month on Friday as investors wagered on central banks bringing inflation to heel, though growth fears dragged on commodities. After some heavy recent losses, MSCI’s World equities index is up 2% on the week. MSCI’s broadest index of Asia-Pacific shares outside Japan rose by 1% on Friday, supported by a 5% rise in Alibaba, amid hints that China’s technology crackdown is failing. Japan’s Nikkei rose for a 2.0% weekly gain, Nasdaq picked up by 7.5% while S&P 500 was up by 6.4% on a weekly basis.
Oil prices pulling back to below $110 on economic growth worries
Oil prices pulled back over the last week as tight supplies in the market have been overshadowed by economic growth worries as Russia ramps-up tensions with Europe and as the Federal Reserve aims to slow economic activity to bring down hot inflation. Prices for Brent crude, the international benchmark, and West Texas Intermediate crude have each slumped about 11% after hitting highs above $120 a barrel in early June. Brent and WTI on Friday were trading with handles of $108 and $109, respectively. Crude futures slipped back into sell mode after U.S. manufacturing and services PMIs came in well below expectations, along with a downswing in Germany’s manufacturing data.
On another note, OPEC and allied producing countries including Russia will likely stick to a plan for accelerated output increases in August in hopes of easing crude prices and inflation. The group known as OPEC+ agreed at its last meeting on June 2 to boost output by 648,000 barrels a day in July, or 7% of global demand, and by the same amount in August, up from the initial plan to add 432,000 barrels per day a month over three months until September. In parallel, official weekly estimates for U.S. oil inventories were scheduled to be released on Thursday but technical problems will delay those figures until next week, the US Energy Information Administration said, without giving a specific timeline.
Gold prices on course for their second straight weekly decline
Gold prices were flat on Friday but on course for their second straight weekly decline, with worries over major central banks potentially implementing big interest rate hikes to target runaway inflation weighing on bullion demand. Spot gold was up to $1,830 after hitting a one-week low of $1,820.99 earlier on Friday. Gold prices have dropped about 0.6% over the week. However, the European Union gave a cautious response on Sunday to plans by fellow G7 members to ban imports of Russian gold. As such, gold prices picked up on Monday morning to near $1,840 per ounce, signaling potentially tighter supplies of bullion.
In cryptocurrencies, the Bitcoin price rose above the $21,000 mark. The world’s largest and most popular cryptocurrency rose more than 2.7% over the week. The global cryptocurrency market cap was below $1 trillion on Friday. Ether, the coin linked to the Ethereum blockchain and the second-largest cryptocurrency, jumped more than 11.3% at $1,218 on a weekly basis. Crypto markets are struggling to consolidate after declining precipitously in recent months as the Federal Reserve hiked interest rates to fight inflation. The collapse of the Terra/Luna ecosystem and continued concern about hedge fund Three Arrows Capital Ltd. have further distressed investors.