Wild and Woolly Night for Stocks, Commodities

By Glenn Dyer | More Articles by Glenn Dyer

So what will Australian investors make of the lead from Wall Street this morning?

On a dramatic Tuesday in global markets, the US dollar hit a 20 year high against the euro, oil hit its lowest level in two months, copper sold off to 20-month lows, gold hit a 2022 low and gloom and doom prevailed about the outlook for the global economy.

Markets in Asia and Europe were weak Tuesday – the Stoxx 600 index slumped more than 2% in Europe as major markets in the region all sold off heavily, losing between 2% and 3% for the day.

The ASX was up 0.25% on Tuesday and the Nikkei and Hang seng were in the green as well, but China and other markets were lower.

European markets sold off and the selling accelerated in Europe and early in Tuesday’s session on Wall Street.

For the US markets, it was a rather confusing return from the holiday weekend – the Dow and S&P 500 sold off but the tech-heavy Nasdaq jumped.

And then things changed towards the end of the session – so much so that while Nasdaq remained in positive territory it was joined by the bulk of the market

By the close Wall Street stocks had staged an afternoon rally despite those fears about a recession not really going away.

US bond yields fell on these fears and that saw an immediate boost to the tech heavy Nasdaq which surged 1.75% to 11,322.24 after opening the day sharply lower.

The S&P 500 rose 0.16% to 3,831.39 after being down more than 2% at session lows. The Dow ended down 129.44 points, or 0.4%, at 30,967.82 but was down more than 700 points earlier.

Overnight ASX 200 futures saw the Share Price Index off 60 points – but it had been down more than 80 points earlier.

The benchmark 10-year US Treasury bond yield and the yield on the 2-year bond inverted Tuesday for a third time in 2022 in a move that has a strong historical track record as a recession indicator.  The 10-year yield ended at 2.81%, the lowest since late May.

When short-term Treasury yields trade above long-term yields, it could be a sign that investors expect an economic slowdown to lead to rate cuts.

The euro to its lowest level in two decades on Tuesday as fears of a recession in the euro zone grew with inflation running above 8% in the zone, the Russian invasion of Ukraine showing no signs of abating and signs of weakening consumer demand as the European central Bank prepares for a 0.25% rate rise in a week or so.

The euro shed around 1.55% for the session to hit $US1.0259 against the dollar, while the dollar index rose 1.32% to a year high of 106.79 before easing to 106.51. The Japanese yen also traded around 20-year lows as well

All this saw the Aussie dollar drop under 68 US cents to around 67.99 (just before 7am Sydney time) after hitting a year low of 67.61 US cents.

US West Texas Intermediate crude, the US oil benchmark, settled 8.24%, or $US8.93, lower at $US99.50 a barrel. At one point, WTI slid more than 10%, trading as low as $US97.43 per barrel. The contract last traded under $100 on May 11.

Brent crude, the global marker, settled 9.45%, or $US10.73, lower at $US102.77 a barrel.

Both had losses in June, ending six straight months of gains as recession fears cause Wall Street to reconsider the demand outlook.

Citi said Tuesday that Brent could fall to $US65 a barrel by year’s end should the economy tip into a recession.

“In a recession scenario with rising unemployment, household and corporate bankruptcies, commodities would chase a falling cost curve as costs deflate and margins turn negative to drive supply curtailments,” the firm wrote in a note to clients.

Gold fell to its lowest this year of $US1762 an ounce. It settled down almost 2% at $US1,767.40 after peaking at $US1,813 an ounce early in the session.

And in early Asian dealings, gold continued falling to be down more than 2% at $US1,764 an ounce.

Copper slid more than 4.5% to settle around $US3.44 a pound, the lowest for 20 months (since November, 2020).

Iron ore prices edged up nearly 2% to $US111 a tonne in Singapore (from just over $US108 on Monday) but Australian hard coking coal fell to $US279 a tonne. Thermal coal prices eased a little but are still well over $US350 a tonne.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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