It was another risk-off session on Wednesday, with stock markets and the oil price both falling sharply after the US 2/10 year yield curve inverted and indicated the growing possibility of a US recession, which came on top of poor economic data earlier in the day from both Germany and China. The German GDP contracted -0.1% in Q2 sending the 10-year bund yield to a new record low of -0.656%, while China’s Industrial Production figures, seen yesterday in Asia, posted a 17 year low. The yield on the 10-Year US Treasury note briefly fell below that of the 2-Year Treasury for the first time since 2007, and with the trade-war showing little sign of real improvement, it could be that the inversion of the yield curve could persist and would continue to weigh heavily on stocks.
The DJI closed down -800 points, -3.05%, the biggest drop this year, while the Nasdaq was also down over -3%. The oil price did not like the possibility of a recession either and fell by 2.9% although it did bounce off its lows, below 54.00, to finish the day at 54.80. In other markets, the US$ was mixed, with the Jpy and the Chf being the best safe-haven performers, while the Euro was under pressure following the poor German data. The DXY did end higher though, back at 98.00, despite the inversion of the yield curve, while the other winner was Gold, which rallied by 0.85% as safe-haven demand set in.
Looking ahead, Thursday will be a busy one for the Australian dollar with RBA’s Debelle speaking early in the session ahead of the Australian Consumer Inflation Expectation for August and the Employment data for July (exp 5.2%, +14K, PR @66.0%). A failure to match expectations would weigh heavily on the Aud$ I suspect.. Elsewhere in Asia, we will see the release of the July China House Price Index and the Japan Capacity Utilisation/Industrial Production, for June. From Europe, expect a quiet session, being the Assumption Day holiday, with the focus being on the July UK Retail Sales (exp -0.2%mm, +2.6%yy). The US will be busy, also with the Retail Sales (exp 0.3%mm), alongside the Industrial Production (exp 0.2%mm), Capacity Utilisation (exp 77.8%), Business Inventories (exp 0.1%mm), Philadelphia Fed Mfg Survey (exp +10.0), the NAHB Housing Market Index (exp 66) and the weekly Jobless Claims (exp 214K). Have a good day.
Economic data highlights will include:
Thur: EUU Assumption Day Holiday, RBA’s Debelle Speech, Australian Consumer Inflation Expectation, Unemployment, China House Price Index, Japan Industrial Production, Capacity Utilisation UK Retail Sales, US New York State Empire Mfg Index, Retail Sales, Jobless Claims, Industrial Production, Capacity Utilisation NAHB Housing Market Index, Philadelphia Fed Mfg Survey
Market moves, in brief:
FX: DXY 98.03 (+0.20%)
Bonds: US2Y; 1.585% (–5.46%), US10Y; 1.584% (-7.11%), German 10Y; -0.652% (-6.94%), UK 10Y; -9.38 % (0.443%), Australian 10Y; 0.950% (+1.02%), NZ 10Y; 1.11% (+2.78 %), China 10Y; 3.053% (-0.66%)
Stock Indices: DJI; -3.05%, S+P; -2.93%, NASDAQ; -3.02%, EUStoxx50; -2.04%, FTSE100; -1.42%, Shanghai Composite; +0.42%,
Metals: Gold $1514 oz (0.85%), Silver $17.19 oz (1.35%), Copper $2.593 lb (-1.41%), Iron Ore $95.71 per tonne (NYMEX) (+0.63%),
Oil: WTI $55.03 pb (-2.95%)
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