Global equity markets were flat while U.S. Treasury yields rose on Tuesday, as recession worries persisted amid concern the Federal Reserve will continue its steep interest rate hikes despite nascent signs of a slowdown in inflation. Meanwhile, Canada’s main stock index rose to its highest level in more than two months as domestic data showed signs of inflation peaking, but gains were limited by uncertainty about whether the recent rally could be sustained.
The yield curve between two- and 10-year Treasury notes , viewed as an indicator of impending recession, remained inverted at minus 40 basis points on Tuesday.
“It seems that the bond market doesn’t quite reflect the inflation happening in the economy,” said George Young, a portfolio manager at Villere & Company in New Orleans. “The weird thing is that in the last couple of weeks bond yields have gone up and stayed up so there’s kind of a disconnect. There’s kind of a question maybe inflation isn’t that bad and we may actually be going into a recession. Market participants are all over the place,” he added.
MSCI’s gauge of stocks in 50 countries across the globe shed 0.07 per cent. Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.07 per cent lower, while Japan’s Nikkei lost 0.01 per cent.
U.S. Treasury yields edged higher as encouraging data from U.S. retail giants suggested the Fed has room to further raise rates to cool inflation. Benchmark 10-year Treasury yields were at 2.8222 per cent from 2.791 per cent on Monday On Wall Street, the Dow reversed earlier losses and was trading higher, with stocks in consumer discretionary, consumer staples, and healthcare leading the rebound. Benchmark S&P 500 was flat in afternoon trading.
The Dow Jones Industrial Average gained 239.57 points 0.54 per cent to end at 34,152.01, the S&P 500 advanced 8.06 points or 0.19 per cent to 4,305.20 and the Nasdaq Composite slid 25.50 points or 0.19 per cent to 13,102.55.
The S&P/TSX composite index rose 89.37 points or 0.44 per cent to 20,269.97, its fifth straight day of gains and its highest closing level since June 10.
“We have seen finally a beat to the downside on the inflation number,” said Steve Palmer, chief investment officer at AlphaNorth Asset Management. “Investors can interpret that as things are starting to get under control with the rising [interest] rates.”
Data last week showed an easing of U.S. inflation pressures in July. It helped extend a recent rebound in global stock markets after they were buffeted this year by worries that aggressive central bank tightening to tackle inflation could derail economic growth.
Oil prices dropped more than 3 per cent in volatile trading as recession worries raised uncertainty over global crude demand, even as markets awaited clarity on talks to revive a deal that could allow more Iranian oil exports.
Brent crude futures fell 3.47 per cent to US$91.80 a barrel, after hitting a session high of US$95.95. West Texas Intermediate crude (WTI) decreased 3.69 per cent to US$86.11 a barrel, after rising to US$90.65.
The dollar gained as the greenback benefited from expectations the U.S. economy would be stronger than peers in the event of a slowdown in growth. The dollar index rose 0.038 per cent, with the euro up 0.04 per cent to US$1.0164.
Safe-haven gold fell for a second straight session on Tuesday as a firmer dollar made the greenback-denominated metal more expensive. Spot gold dropped 0.1 per cent to US$1,776.89 an ounce, while U.S. gold futures fell 0.36 per cent to US$1,774.90 an ounce.
Reuters
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.