Economist's Insights

Today’s Trading Activity – Treasurys Rallied, Flattened to New Cycle Low as Stocks Gave Up Early Gains

Jun 27, 2018

U.S. equities went on a wild ride Wednesday, initially rising on reports the U.S. wouldn’t be as restrictive as feared on foreign technology investments before tumbling back to close near their lowest ticks of the day as broader trade fears lingered. Stocks jumped at the open following a pre-market news alert from CNBC that “Trump’s tech crackdown on China less restrictive than expected”. Just before 10 a.m. CT, the S&P 500 had added nearly 0.9% and was on track for its best day since June 6. Around 10 a.m. CT, Larry Kudlow, the President’s Chief Economic Adviser, remarked that the aforementioned development on technology wasn’t a signal the White House was retreating on China. Stocks dipped and didn’t recover. Technology companies led the slide, evidenced by the Nasdaq’s day’s-worst 1.5% retreat. The sector was also the weakest within the S&P 500, which ultimately fell 0.9% on the day. Surging crude prices continued to shield energy companies and keep the sector atop the S&P. U.S. oil prices rallied more than 2.5% to a more than three-and-a-half-year high after a huge drawdown of U.S. inventories further fueled worries of shrinking global supplies.

The Department of Energy reported U.S. inventories fell 9.9MM barrels last week, the biggest decline since September 2016. As equities weakened, the daily trend lower in Treasury yields intensified. The 2-year yield fell 3.0 bps to 2.50%, the lowest since June 8. The 10-year yield dropped 5.1 bps to 2.826%, the lowest since May 29.

The net result was the spread between the two dropping for an 11th time in the last 13 sessions to a new cycle low of 32.0 bps.

Lost in the other news, the Dollar firmed in the flight to quality to its strongest level since July 2017.