Markets off session lows while oil slides below $100 per barrel

Dow finished at the best level today (down 129), decliners over advancers only 5-4 & NAZ gained 194.  The MLP index gave back 4+ to the 187s & the REIT index pared losses, off only 1+ to the 411s.  Junk bond funds drifted lower & Treasuries remained in heavy demand, taking yields lower,  Oil continued weak (down 9 to the 99s) & gold tumbled 34 to 1767 on the strong $ (more on both below).

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The Federal Reserve's key gauge for tracking US economic activity currently estimates that GDP shrank in Q2 even more than in the first, increasing concerns that the country may already be in a recession.  The latest reading from the Atlanta Federal Reserve Bank's GDPNow model, which is considered the central bank's primary tool for measuring growth in real-time, indicated Jul 1 that real GDP shrank by 2.1% on a seasonally adjusted annual rate in Q2.  That is a 1.1% drop from GDPNow's -1.0% reading from the day before, when the gauge went negative.  The next estimate from the tracker will be released Thurs.  While the official advance estimate of Q2 performance will not be available until the end of the month, these preliminary readings show the second consecutive quarter of negative growth in the economy after GDP contracted 1.6% in Q1.  If further readings confirm that the economy did, indeed, shrink in Q2, the technical criteria for a recession will be met, which is defined by 2 consecutive qtrs of negative growth.  However, the National Bureau of Economic Research (NBER) is the authority that makes the official determination.  Some economic slowdown was expected as the Federal Reserve began implementing interest rate hikes earlier in the year in an attempt to cool inflation, which reached a 4-decade high in May.  The central bank's challenge is to bring down soaring prices without going too far in slowing growth, but Fed Chair Powell said last week that failing to tame inflation would be a greater risk to the economy than entering a recession.

US may be in recession, Atlanta Fed data show

The bond market is flashing a warning that the economy may be falling or already has fallen into recession, according to one closely watched measure.  Market pros watch the spread on the Treasury yield curve, or the difference between the longer duration Treasury yields & shorter duration yields.  But the 2-year yield has now risen above the 10-year yield.  As of today, the 2-year Treasury yield was at 2.792%, above the 2.789% rate of the 10-year.  That inversion is a warning sign that the economy could be weakening & a recession is possible.  One way to look at the importance of the yield curve is to think about what it means for a bank.  The yield curve measures the spread between a bank's cost of money versus what it will make by lending it out or investing it over a longer period of time.  If banks can’t make money, lending slows & so does economic activity.  After a burst higher to nearly 3.5% in mid-Jun, the 10-year yield has slumped to 2.78%, & was hovering just below the 2-year note’s 2.79% yield.  The 10-year had moved higher on worries about inflation, but reversed course as investors became more worried about the economy.  Yields move opposite bond prices.  The benchmark 10-year is widely watched because it influences mortgages & other lending rates.  The 2-year is much more influenced by the Federal Reserve's interest rate hikes, & it has been moving higher. 

Bonds flash recession warning light as key part of the yield curve inverts again

Oil prices tumbled today with the US benchmark falling below $100 as recession fears grow, sparking fears that an economic slowdown will cut demand for petroleum products.  West Texas Intermediate crude (WTI), the US oil benchmark, slid 9% ($9.83) to trade at $98.60 per barrel.  The contract last traded under $100 on May 11.  Intl benchmark Brent crude shed 9.9% ($11.46) to trade at $102.04 per barrel.  Both contracts posted losses in Jun, snapping 6 straight months of gains as recession fears cause traders  to reconsider the demand outlook.  Prices have been elevated since Russia invaded Ukraine, raising concerns about global shortages given the nation's role as a key commodities supplier, especially to Europe.  WTI spiked to a high of $130.50 per barrel in Mar, while Brent came within striking distance of $140.  It was each contract's highest level since 2008.  But oil was on the move even ahead of Russia's invasion thanks to tight supply & rebounding demand.  High commodity prices have been a major contributor to surging inflation, which is at the highest in 40 years.  Prices at the pump topped $5 per gallon earlier this summer, with the national average hitting a high of $5.016 on Jun 14.  The national average has since pulled back amid oil's decline & sat at $4.80 today.  Despite the recent decline some experts say oil prices are likely to remain elevated.

Oil tumbles more than 9%, breaks below $100 as recession fears mount

Gold fell below the key $1800-an-ounce level to settle at its lowest price so far this year on back of a rise in the $ index toward a 20-year high.  Gold prices for Aug dropped $37 (2.1%) to settle at $1763 an ounce after touching a low at $1763.  Prices for the most-active contract marked their lowest finish since early Dec.  The greenback traded at a new 22-year high against the €, with one $ buying roughly 1.03€s.  The ICE US. Dollar index was up 1.5% at 106.66, trading around the highest levels since in 20 years.  Minutes from the Federal Reserve Open Market Committee’s Jun meeting, due out on tomorrow, as well as the monthly data on U.S. nonfarm payrolls, due Fri, are the 2 most important events for the yellow metals, which are likely to bring significant volatility to the price.

Gold prices settle at their lowest level of the year as the dollar index climbs toward a 20-year high

Oil futures fell sharply, with US prices below the $100-a-barrel mark - at their lowest in nearly 2 months, pressured by strength in the $ & concerns over a possible recession that would hurt energy demand.  WTI oil's fall was inevitable as the market rebalances after fears of sanctions give way to the realities of Russian sales to new buyers in Asia & the impact of high prices on demand & the economy.  West Texas Intermediate crude for Aug fell $8.93 (8.2%) to settle at $99.50 a barrel, the lowest front-month finish since May 10.

Oil futures settle sharply lower, with U.S. prices below $100 a barrel

The first estimate for Q2 GDP will likely be slightly negative, shown above.  That would show a recession, although not a significant one.  Of course, Q3 remains uncertain.  High interest rates generally pinch the economy.  That is done to reduce inflation.  Keep your fingers crossed that the pain is not too difficult to deal with.  That's what the late day buyers are hoping for.

Dow Jones Industrials