The Arab Federation of Capital Markets reported that over the previous week, the U.S. Treasury yield curve inverted again, as investors continue to evaluate the Federal Reserve’s aggressive move in bringing down inflation that could push the economy into recession. As such, Wall Street’s three main indexes weakened last week amid higher-than-expected June inflation figures and a disappointing initial round of the second quarter earnings reports. In parallel, Crude oil prices plunged to below $100 a barrel as the Chinese economic outlook, dimmed by lockdowns to contain Covid-19 outbreaks, appeared to be the major cause of the decline, along with increasing signs of a global economic slowdown. Gold Price oscillates around $1,700 as downside looks likely on rising hawkish Fed bets, as a stronger dollar has always been a headwind for commodities.
Yield curve inversion reaching biggest point since 2000 to signal recessionary outlook
On Wednesday, the 2-year Treasury yield went up while its 10-year counterpart went down, pushing the inversion between the two to its biggest level since 2000, signaling that a recession lies on the horizon. The 2-year, which is more sensitive to changes in monetary policy, traded at around 3.138%, while the benchmark 10-year rate, meanwhile, slid to 2.919%. Those moves came after the consumer price index rose 9.1% on a year-over-year basis in June, well above a Dow Jones estimate of 8.8%, and marked the fastest pace for inflation since November 1981. It also added to worries of even tighter monetary policy from the Federal Reserve. However, the gap between the 2-year and 10-year yields shrunk Friday but remained inverted as stocks popped and traders weighed the possibility that the U.S. Federal Reserve will hike interest rates by 75 basis points at its next meeting, not 100 basis points. The 2-year yield was down to 3.124% while the yield on the benchmark 10-year Treasury note fell to 2.926%.
Within this context, the US dollar hovered below a near two-decade high on Friday, having slipped overnight after two Federal Reserve policymakers said they favored a smaller rate rise than the 100 basis points that investors were betting on. The US dollar index, which measures the currency versus six counterparts, higher to 108.7, after reaching and then falling back from the highest since September 2002 at 109.3 on Thursday. The euro was flat at $1.002, after bouncing back from below parity on Thursday for a second day. The single currency dipped as low as $0.995 after Italian Prime Minister Mario Draghi offered to resign, but that was rejected by the country’s president. Sterling edged higher to $1.184, after slumping to a 28-month low of $1.176 overnight, heading for its worst week since early May as political turmoil casts a shadow over the currency.
Asian stocks hit a two-year low on Friday and were heading for a weekly loss, China’s economy contracted sharply in the second quarter data released on Friday showed, while annual growth also slowed significantly, highlighting the colossal toll on activity from widespread COVID lockdowns, which jolted industrial production and consumer spending. MSCI’s index of Asia-Pacific shares outside Japan fell by 0.5% in early trade to a two-year low, dragged down by concerns about China’s property market where homeowner threats to cease mortgage payments have spooked markets. Overnight, Wall Street indexes fell after weaker-than-expected earnings from JP Morgan Chase reporting a 28% drop in quarterly earnings and after fresh consumer price data exacerbated recession fears. As such, the Dow Jones weakened by 0.2%, the S&P 500 by 0.9%, while the Nasdaq fell by 1.2% last week.
Oil prices to below $95 a barrel for the first time since Ukrainian war
Oil prices have fallen below $95 a barrel for the first time since Russia invaded Ukraine, as fears of an impending global recession grasp commodity markets and batter forecasts for demand. In fact, China’s refinery throughput in June shrank nearly by 10% from a year earlier, with output for the first half of the year down by 6% in the first annual decline for the period since at least 2011. As such, both major benchmarks for crude shed more than $5 a barrel on Thursday or more than 5%. Brent, the international benchmark, fell as low as $94.5 a barrel while the US marker West Texas Intermediate dropped to $90.6, below its close of $92.1 before the war. However, oil prices rose again on Friday amid prospects of a less aggressive U.S. rate hike, although worries about a recovery in demand capped gains. Brent crude futures rose to $100.4 a barrel, while WTI crude rose to $96.7 a barrel.
In parallel, natural gas cash prices rode a searing heat wave to register strong gains for the trading week. In fact, extreme heat and dry conditions bolstered demand and prices. At the same time, U.S. production hovered between about 94 Bcf and 96 Bcf, below the 97 Bcf that many analysts had expected to see by July. As such, U.S. natural gas futures jumped about 6% to a four-week high while the August Nymex natural gas contract took a winding path but it, too, ultimately advanced for the week. The prompt month settled at $7.016/MMBtu to close trading on Friday, up 16% from the prior week’s finish.
Gold prices on course for the fifth weekly loss on US dollar surge
Gold prices posted on Friday its fifth straight weekly loss, as expectations of a sizeable rate hike by the U.S. Federal Reserve powered the dollar and eroded bullion’s appeal. Spot gold firmed to $1,705.4 per ounce but lost about 2% this week while U.S. gold futures also eased by 0.13% to $1,703.6, with the gold inching higher on Friday as the dollar rally relatively eased. Spot silver posted a weekly decline of 3.0% to $18.7, while Platinum went down by 5.7% to $932.6 and palladium fell by 15.6% to $1,821.0 Gold looks to be in a free fall, and typically buyers will restrain themselves until the price finds some decent support.
In cryptocurrencies, markets recovered over the weekend as coins like Ethereum and Polygon witnessed a sharp rise in prices as most cryptocurrencies retained their gains over the weekend. However, and despite a slight decline, Bitcoin remained above the $20,000 level, while the second largest cryptocurrency, Ethereum, has outperformed the market by gaining 17% over the previous week. Ethereum has traded to near $1,400 level for the first time in a month on Saturday as “the Merge” to Proof-of-Stake draws nearer, while Polygon (Matic) price jumped by around 44% over the last week.