For most of Tue, US commodity and financial markets were sending the message “recession ahead!” The price of US WTI crude oil plunged below $100 per barrel. US Treasury yields sank. The 2-year Treasury note now has a higher yield that the 10-year Treasury note. An inverted Treasury yield is a reliable predictor of an upcoming recession. Early in the trading session, the Dow Jones Industrial Average was down more than 700 points.
Although there was not much recovery in commodity prices or bond yields, shares on Wall Street staged a powerful recovery, especially the tech-heavy Nasdaq. The Dow did not make it all the way back to breakeven. The Dow finished down and lost 129.44 pts, or 0.42%, to close at 30,967.82. The broader S&P 500 index rose 0.16%. The Nasdaq Composite advanced 1.75%. The small-cap Russell 2000 gained 0.79%.
Mega cap tech stocks rose on Tue, including Apple (AAPL US, +1.89%), Microsoft (MSFT US, +1.26%), Amazon (AMZN US, +3.6%), Alphabet (GOOGL US, +4.16%), Nvidia (NVDA US, +3.04%), and Meta Platforms (META US, +5.10%).
The yield on the 10-year Treasury note slipped 7.48 basis points (bps) to 2.8054%, while the yield on the 2-year Treasuries fell 1.45 bps to 2.8184%. The front-month Brent and WTI futures closed down $10.73 at US$102.77/bbl and $8.93 at US$99.50/bbl respectively.
The US dollar is generally a countercyclical currency, meaning it outperforms when the global economy is slowing. The US dollar was on fire on Wed. The ICE dollar index (DXY), which measures the strength of the greenback against a basket of currencies, rose 1.33% to 106.535. The euro fell 1.4% to US$1.0264, its weakest level since Dec 2002.
The pound was particularly weak on further signs that Boris Johnson’s tenure as British prime minister is numbered. Chancellor Rishi Sunak and Health Secretary Sajid Javid quit the Cabinet, saying they've lost confidence in him. Sterling dropped below US$1.19.
The most actively traded US gold futures (Aug) contract settled down $37.60, or 2.1%, at US$1,763.90/oz. September silver, which is the most actively traded silver futures, fell 54.6 cents, or 2.8%, to end at US$19.121/oz.
European equity markets finished lower on Tue. The UK FTSE lost 2.86%, France's CAC 40 fell 2.68% while the German DAX retreated 2.91%.