Global financial markets came under pressure last week as recession fears permeated market sentiment, dragging on stock indexes, commodities, and risk-sensitive currencies. The closely-watched 10-Year/2-Year yield spread—a so-called recession predictor—fell deeper into inversion. That suggests waning confidence in the Fed’s ability to orchestrate a “soft landing.”
Economic growth expectations have softened considerably recently. China’s Q2 GDP data was the latest sign that headwinds to global growth are strengthening. The US consumer price index (CPI) for June recorded its highest print in more than 40 years. Markets began pricing in the possibility for the Fed to hike by a full percentage point later this month. Those bets were slashed moving into the weekend after several Fed officials tempered expectations.
A report from the University of Michigan showed that US consumer long-term inflation expectations fell in early July. That, along with a strong US retail sales report, allowed stocks to end the week on a high note, with the Dow Jones[1] gaining 2.15% on Friday, nearly wiping out its weekly loss. Gold prices[2] continued to slide into the weekend despite some softening in the US Dollar[3]. Brent crude and WTI crude oil prices[4] fell more than 5% amid the pickup in growth fears. A large gasoline inventory build reported by the EIA dragged demand expectations lower. The oil[5]-linked Canadian Dollar[6] fell. Canada's June inflation rate drops this week.
The US Dollar Index (DXY) hit its highest level since September 2002. The Japanese Yen[7] fell nearly 2% against the US Dollar, holding its position as the worst performing major currency in 2022. The Bank of Japan is expected to keep its ultra-loose policy in place when it meets on
