U.S. bond yields fell sharply on Wednesday after oil prices dropped to a four-month low, offering some relief on the inflation front — but that relief didn’t extend to Wall Street, where concerns about technology stock valuations pushed the S&P 500 and Nasdaq into negative territory.
A column published Wednesday examined why the dollar’s continued climb hasn’t triggered the alarm bells typically expected in global financial markets. The explanation centers on falling oil and energy prices, which are helping offset the inflationary pressure a stronger dollar would normally create for other countries.
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For those wanting a deeper look at today’s market activity, several notable stories are making the rounds: Qualcomm announced that Microsoft and Meta will be using its new artificial intelligence chips; Treasury Secretary Bessent praised a reduction in Federal Reserve guidance and called for the elimination of the so-called “dot plot”; a commentary piece argues the Fed has a troubling blind spot when it comes to asset bubbles; some Bank of Japan members are pushing for faster interest rate increases; and analysts say the time to start dividing up AI-generated wealth is now.
Wednesday’s Key Market Movements
Stock markets were mixed globally. South Korea surged 3.5% while Japan slipped 0.8%. European markets were largely flat, with the UK edging up 0.3%. In the U.S., the S&P 500 fell 0.1%, the Nasdaq dropped 0.4%, and the Dow Jones gained 0.4%.
Among notable sector and company moves, Germany’s Rheinmetall plunged 19%, while Micron Technology jumped 15% and Wendy’s soared 26%. Six of the eleven S&P 500 sectors finished higher, with industrials and utilities each gaining about 1%, while energy fell 1.7%. Airline stocks climbed sharply, while private equity firms pulled back.
The U.S. dollar index rose for a sixth straight session, reaching a 13-month high. Norway’s crown was the biggest loser among major currencies, falling 1% on the back of sliding oil prices. Peru’s sol also dropped 1%.
In the bond market, U.S. yields at the long end fell by 9 basis points, and the 2-year/10-year yield curve reached its flattest point since March of last year. A 5-year Treasury auction drew weak investor demand.
Commodity markets saw significant moves as well. Gold fell below $4,000 per ounce, its lowest level this year. Silver tumbled 8%, now sitting more than 55% below its January peak. Oil dropped 4%.
Three Big Themes
As the end of the month, quarter, and first half of the year approaches, asset prices are swinging more dramatically. Investors are rebalancing their portfolios, locking in profits, and closing out positions. Gold’s 12% decline in June puts it on track for its worst monthly performance since 2008. Silver has lost more than 50% from its January high and is down 25% just this month. Bitcoin has fallen below $60,000, off nearly 20%. Stocks remain relatively elevated — though whether they’re next in line for a correction or building toward another rally remains an open question.
Inflation expectations across developed economies are falling rapidly, driven by easing tensions in the Middle East, reopening supply routes, and tumbling energy costs. Market-based measures are leading the way, with consumers and businesses likely to catch up later. The U.S. 5-year breakeven inflation rate sits at 2.20%, the lowest of the year. The 10-year equivalent is even lower, at its weakest point since April of last year. In Europe, one-year inflation swap rates in the euro zone have dropped back below the European Central Bank’s 2% target, and the two-year UK inflation swap rate is at a six-month low.
The U.S. yield curve has been flattening for months, a trend that picked up speed last week following the Federal Reserve’s statement and Chair Kevin Warsh’s press conference. On Wednesday, the closely watched 2-year/10-year spread closed at 25 basis points — the flattest it’s been since March of last year. Traditionally, a flattening yield curve signals slower economic growth ahead. However, that textbook rule has been called into question after two full years of curve inversion between 2022 and 2024 failed to produce a recession. Whether another potential inversion should raise alarms remains an open debate.
What to Watch Thursday
Markets will be keeping an eye on developments in the Middle East, along with Australia’s May employment figures and Germany’s July consumer sentiment report. European Central Bank board members Philip Lane and Piero Cipollone are scheduled to speak. Mexico will announce its interest rate decision. In the U.S., investors will be watching weekly jobless claims, May durable goods orders, the final reading of first-quarter GDP, and May PCE inflation data. The U.S. Treasury will also auction $44 billion in 7-year notes. Federal Reserve officials scheduled to speak include Vice Chair for Supervision Michelle Bowman, New York Fed President John Williams, and Chicago Fed President Austan Goolsbee.
