19/10/2022
Before the U.S. stock market opened on Wednesday (October 19), the three major index futures collectively turned down. As of press time, Dow futures fell 0.51%, S&P 500 futures fell 0.66%, and Nasdaq 100 futures fell 0.67%.
After the bell yesterday, streaming media company Netflix announced gratifying third-quarter results, not only reversing the loss of paid subscribers, but also giving a more optimistic outlook than Wall Street expected. That sent U.S. stock futures briefly higher, with Nasdaq 100 futures rising as much as 1.6%.
However, after the opening of European stocks today, the situation changed suddenly, and the yields of US government bonds collectively rose significantly. Among them, the 10-year U.S. Treasury bond yield, the "anchor of global asset pricing", returned to above 4%, the highest level since the 2008 financial crisis.
The 2-year U.S. Treasury yield rose above 4.5%, exacerbating the inversion of the yield curve, which is often seen as a signal that the U.S. economy is about to (or has) slipped into recession. A new forecast yesterday showed a 100% chance of a U.S. recession in the next 12 months, up from 65% in the last forecast.
The Fed has raised rates by 300 basis points so far this year, but even with such an aggressive policy, U.S. inflation remained at a 40-year high in September. The latest minutes show that the bank is likely to continue to raise interest rates sharply in November and December.
But many respondents said that U.S. interest rates have now reached an unhealthy range, which will further destabilize the U.S. economy. Fitch, one of the three major international rating agencies, also warned yesterday that the U.S. economy is likely to fall into a mild recession from the spring of 2023, and lowered its growth forecast for next year to 0.5% from the previous 1.5%.
Market dynamics
Yesterday, the three major U.S. stock indexes closed higher, but the gains were significantly more modest than Monday. As of the close, the Dow Jones rose 1.12%, the S&P 500 rose 1.14%, and the Nasdaq rose 0.90%.
Most European markets in trading were lower. As of press time, the German DAX30 index fell 0.13%, the British FTSE 100 index fell 0.18%, and the French CAC40 index rose 0.01%
