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Business Maverick

Stocks Waver as Treasuries Sound Recession Alarm: Markets Wrap

Stocks Waver as Treasuries Sound Recession Alarm: Markets Wrap
Pedestrians wearing protective face masks wait to cross a road in front of an electronic stock board outside a securities firm in Tokyo, Japan, on Thursday, Sept. 17, 2020. Japanese stocks were set for their fourth straight weekly gain, the longest winning streak since November, as investors moved back in following this week’s central bank rate decisions at home and in the U.S. Photographer: Kiyoshi Ota/Bloomberg

Stocks fluctuated as the Treasury curve inversion deepened to levels last seen in 2007, underscoring fears that Federal Reserve rate hikes will sink the economy into a recession. Oil fell below $100 a barrel.

The Dow Jones Industrial Average of blue chips outperformed, while a rally in tech megacaps fizzled out, with losses in heavyweights like Microsoft Corp. and Tesla Inc. weighing on the broader market. The yield on the 10-year US note dropped as much as 12 basis points below the two-year rate, eclipsing the gap reached in early April. So-called inversions of the curve are regarded as a potential harbinger of an economic contraction.

Traders also kept a close eye on the US dollar, which remained at the highest levels since the Covid-19 panic of March 2020. For now, a wall of derivatives bets is keeping the euro from hitting parity with the greenback for the first time in two decades.

“In the current environment, dollar strength is a sign of investors’ worries about a global recession since it signals a flight to the relative safety of the world’s reserve currency,” wrote Nicholas Colas, co-founder of DataTrek Research. “Until the dollar starts to weaken, it is difficult to believe the lows are in for US equities in 2022.”

For Peter Boockvar at Bleakley Financial Group, investors will be very much focused on the currency moves and their impact on corporate profits. PepsiCo Inc., one of the first major industry players to report second-quarter earnings, said demand remained robust despite inflation — though it expected headwinds from a strong dollar.

Will the eurozone avoid a recession or a debt crisis? How will the euro and stocks perform in the next six months? Share your views and participate in the latest MLIV Pulse survey. It only takes a minute, so please click here anonymously.

What to watch this week:

  • Earnings due from JPMorgan, Morgan Stanley, Citigroup, Wells Fargo
  • New Zealand rate decision, Wednesday
  • US CPI data, Wednesday
  • Federal Reserve Beige Book, Wednesday
  • US PPI, jobless claims, Thursday
  • China GDP, Friday
  • US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
  • G-20 finance ministers, central bankers meet in Bali, from Friday
  • Atlanta Fed President Raphael Bostic speaks, Friday

Stocks

  • The S&P 500 was little changed as of 11:09 a.m. New York time
  • The Nasdaq 100 was little changed
  • The Dow Jones Industrial Average rose 0.3%
  • The Stoxx Europe 600 rose 0.4%
  • The MSCI World index fell 0.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed
  • The euro rose 0.1% to $1.0052
  • The British pound was little changed at $1.1890
  • The Japanese yen rose 0.6% to 136.61 per dollar

Bonds

  • The yield on 10-year Treasuries declined nine basis points to 2.90%
  • Germany’s 10-year yield declined 13 basis points to 1.12%
  • Britain’s 10-year yield declined 13 basis points to 2.05%

Commodities

  • West Texas Intermediate crude fell 7.4% to $96.36 a barrel
  • Gold futures fell 0.1% to $1,729.80 an ounce
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