· The dollar recovered from early weakness against the safe-haven yen to advance modestly on Thursday as better-than-expected U.S. retail sales data tempered concerns that the U.S. economy could be headed for a recession.
Fears over a recession had spiked on Wednesday, driving gains in the Japanese currency against the greenback, after the U.S. Treasury yield curve inverted for the first time in 12 years.
The dollar index, which tracks the greenback versus the euro, yen, sterling and three other currencies, was up 0.11% at 98.095, close to a two-week high.
Meanwhile, sterling rose 0.42% against the dollar, helped by better-than-expected retail sales and news that Britain’s opposition Labour Party has begun its bid to bring down Prime Minister Boris Johnson and stop him from taking Britain out of the European Union without a deal.
· Investors clamored into the safety of U.S. government bonds, sending the 30-year Treasury bond yield below 2% for the first time ever and the 10-year Treasury note yield below 1.5%, a three-year low.
Around 2:00 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, hit a three-year low of 1.475%, while the yield on the 30-year Treasury bond was at 1.944%, after earlier falling to 1.941% for the first time ever. The 2-year Treasury yield was 1.467%, its lowest level since Oct. 2017.
The historic drop in long-term U.S. bond yields comes shortly after interest rates on the closely watched 10-year and 2-year Treasurys inverted. The inversion of this key part of the yield curve has previously been a reliable indicator of economic recessions.
“The yield curve inverted which created a temporary ‘pile on’ effect in the bond markets,” wrote Tom Essaye of The Sevens Report. “We have absolutely not seen what we wanted to out of the Fed. We had hoped for a rally in the 10-year yield and a widening of the 10s-2s spread. The exact opposite has occurred, and at this point currency and bond markets are no longer flashing ‘caution’ signs on the U.S.-global economy and risk assets, they are flashing a ‘warning’ sign —loudly.”
· The inversion of portions of the Treasury bond yield curve this week would “have to be sustained over a period of time” to be taken as a “bearish” signal for the U.S. economy, St. Louis Federal Reserve President James Bullard said on Thursday.
· Investors will be listening closely to Fed officials in coming weeks for insight on whether this week’s sharp drop in stock prices and bond yields will lead the central bank to lower interest rates.
· Calling economic and financial market signals for the economic outlook “mixed,” Minneapolis Federal Reserve Bank President Neel Kashkari signaled on Thursday that he is likely to support further reductions in U.S. interest rates to support growth.
Trade tensions are making businesses cautious, he said, and the inversion of the U.S. yield curve that this week sent global stocks plummeting “is an indicator that people are nervous.” At the same time, the jobs market is strong, and so is consumer spending.
· The Commerce Department says retail sales rose a healthy 0.7% last month, after a 0.3% gain in June. Online retailers, grocery stores, clothing retailers and electronics and appliance stores all reported strong gains.
· The number of Americans filing applications for unemployment benefits increased more than expected last week, but the trend continued to point to a strong labor market.
Initial claims for state unemployment benefits increased 9,000 to a seasonally adjusted 220,000 for the week ended Aug. 10, the Labor Department said on Thursday. Data for the prior week was revised to show2,000 more applications received than previously reported.
Economists polled by Reuters had forecast claims would rise 214,000 in the latest week. The Labor Department said there were no states estimated last week.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, edged up 1,000 to 213,750 last week.
· China on Thursday vowed to counter the latest U.S. tariffs on $300 billion of Chinese goods but called on the United States to meet it halfway on a potential trade deal, as U.S. President Donald Trump said any pact would have to be on America’s terms.
· U.S. President Donald Trump said on Thursday he would not want to see China violently suppressing protesters in Hong Kong and that President Xi Jinping could resolve the situation quickly if he met personally with protest leaders.
· Argentine President Mauricio Macri, smarting from a bruising primary election loss, announced on Thursday an end to sales taxes on basic food products until the end of the year in a bid to salvage his re-election prospects and end an economic crisis.
· North Korea said on Friday it will never sit down with South Korea for talks again, rejecting a vow by the South’s President Moon Jae-in to pursue dialogue with Pyongyang made the previous day as he pledged to bring in unification by 2045.
· North Korea fired two unidentified projectiles into the sea off its eastern coast on Friday morning, South Korea’s Joint Chiefs of Staff said in a statement.
· Oil prices fell more than 1% on Thursday, extending the previous session’s 3% drop, pressured by mounting recession concerns and a surprise boost in U.S. crude inventories.
In a sign of investor concern that the world’s biggest economy could be heading for recession, weighing on oil demand, the U.S. Treasury bond yield curve inverted on Wednesday for the first time since 2007.
China’s threat to impose counter-measures in retaliation for the latest U.S. tariffs on $300 billion of Chinese goods also weighed on oil prices.
Brent crude fell as much as 3%, to $57.67 a barrel. The international benchmark was 2.4% lower at $58.05 and West Texas Intermediate crude (WTI) was down 1.4%, to $54.47.
Reference: CNBC, Reuters
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