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Market Wrap: Recession concerns push oil lower and whipsaw stocks

© Shutterstock / T.Dallasoil recession

Treasuries held a rally and oil slid Thursday as investors parsed the economic outlook after Federal Reserve Chair Jerome Powell acknowledged the risk of a recession.

US futures and an Asian share index fluctuated, with a report that Hong Kong’s incoming leader John Lee is working on a strategy to reopen the city’s borders helping sentiment. European contracts were in the red.

Treasuries had jumped in the Wall Street session and policy-sensitive two-year yields hovered at about 3.06%. Bonds climbed in Australia and New Zealand. The yen climbed and the dollar was little changed.

In commodities, oil (WTI) dropped to around $104 a barrel, sapped by fears over the demand outlook. A raw-materials index is at the lowest since March.

Powell in testimony to the Senate Wednesday said the US has to get high inflation back down to the 2% target. He accepted that steep rate increases could cause an economic contraction and called a soft landing “very challenging.”

“We are still in an era where uncertainty is elevated and is expected to remain so for quite a while,” JoAnne Feeney, Advisors Capital Management portfolio manager, said on Bloomberg Television. “It’s risky right now in terms of the forward outlook for the global economy. Recession risk has clearly risen.”

The odds of the Fed’s rate-hiking cycle extending beyond the November policy meeting have diminished sharply as traders continue to price the prospects of a hard-landing and swifter policy reversal next year.

Powell “has acknowledged that rates will continue to increase, but the FOMC committee is cognizant of watching incoming data, suggesting the Fed will not be exclusively on autopilot with tightening,” said Joe Gilbert, portfolio manager for Integrity Asset Management.

Elsewhere, Bitcoin climbed back above $20,000, while gold dipped.

Stocks
-S&P 500 futures were little changed as of 7:05 a.m. in London. The S&P 500 fell 0.1%
Nasdaq 100 futures were steady. The Nasdaq 100 fell 0.2%
-Japan’s Topix index was little changed
-Australia’s S&P/ASX 200 Index rose 0.4%
-South Korea’s Kospi index fell 0.7%
-Hong Kong’s Hang Seng Index rose 1.7%
-Shanghai Composite Index rose 1.1%
-Euro Stoxx 50 futures fell 0.3%

Currencies
-The Bloomberg Dollar Spot Index was flat
-The euro was at $1.0569
-The Japanese yen rose 0.5% to 135.62 per dollar
-The offshore yuan was at 6.7101 per dollar

Bonds
-The yield on 10-year Treasuries was at 3.16%
-Australia’s 10-year yield fell 13 basis points to 3.85%

Commodities
-West Texas Intermediate crude fell 1.9% to $104.19 a barrel
-Gold was at $1,833.35 an ounce, down 0.2%

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