European markets finished up on Monday with the hope for progress in the talks between Kiev and Moscow and lower Oil prices, ignoring the rise in American bond yields showing increasing worries about a recession in the United States.
Some key data from Monday’s trading session:
- CAC 40 = +0.54%
- DAX 40 = +0.78%
- Euro Stoxx 50 = +0.50%
- Dow Jones = -0.03%
- Nasdaq = +1.04%
- S&P 500 = +0.45%
- Oil = around $112 a barrel
- Gold = around $1,936 the ounce
- EUR/USD = around 1.0991
- GBP/USD = around 1.3093
- AUD/USD = around 0.7492
- USD/JPY = above 123.39
- USD/CAD = above 1.2534
US bond market might be predicting a recession
Yesterday, yields on 5 and 30-year U.S. Treasuries inverted for the first time since 2006, following the inversion of the 5 and 10-year spread earlier in March, sparking fears of a possible economic recession that the Fed could have triggered with its tightening of monetary policy to fight increasing inflation.
On Monday, the yield on 5-year Treasuries rose to 2.6361%, while the yield on 30-year bonds fell to 2.6004%.
An inverted yield curve typically occurs when short-term government bond yields rise above long-term bond yields. Because the near future is too unclear, investors want a higher rate of return on short-term investments than on long-term investments.
An inverted yield curve indicates that investors are losing faith in the economy. If we look at what has happened in the past when short-term rates were higher than long-term rates, we can see that a recession ensued.
Is history going to repeat?
Hard to say. Some analysts believe that the Fed might be making a mistake by tightening its monetary policy so rapidly, as it might trigger an economic slowdown or even a recession. The shape of the curve is likely to continue changing as the Fed increases its main interest rate and makes economic and inflation projections, as well as when it will begin to reduce its balance sheet.
Oil prices drop as China starts a new lockdown
As Covid-10 cases hit a record high in Shanghai, China decided to impose a staggered lockdown to be able to carry out mass tests and keep its zero-Covid policy. This situation might hit Oil demand, as China is the world’s largest Oil importer, especially if the lockdown lasts or spreads to other cities.
After gaining nearly 12% last week, Oil slid about 6% due to concerns over weaker demand from China at about $112 a barrel.
What should you focus on later on this week?
On Tuesday
- Ceasefire talks starting in Istanbul
- US CB Consumer Confidence
- JOLTs Job Opening
On Wednesday
- ADP Nonfarm Employment Change
- US GDP
- US Crude Oil Inventories
- Chinese Manufacturing PMI
On Thursday
- UK GDP
- US Initial Jobless Claims
- OPEC+ meeting
- CAD GDP
On Friday
- Different PMI figures in Europe
- European Core Inflation
- US NFP
- US ISM Manufacturing PMI
