Economist's Insights

Today’s Trading Activity – Stocks Staged an Afternoon Recovery, Treasury Curve Flattened to New Cycle Low:

Jul 2, 2018

U.S. stocks struggled most of Monday but an afternoon climb pushed the major indexes to a positive finish in the first trading day of the third quarter. The S&P 500 dropped 0.7% in the first few minutes of trading amid a return of trade concerns that had weakened global equities overnight. But the midday turnaround left the index 0.3% higher at the close. Tech companies closed atop the index and the financials sector gained for just the second time in 16 sessions. Energy companies were the largest drag and ended the day down 1.6%. Commodities were weaker as contracts fell across the energy, metals, and agriculture complexes. Brent (-2.4%) and U.S. WTI (-0.3%) both dropped after President Trump tweeted that he had asked to King Salman of Saudi Arabia for an even larger increase of OPEC’s production caps than the organization had announced just over a week ago. Treasury yields, which had moved lower overnight, reversed as stocks recovered and after the ISM’s manufacturing index surprised to the high side of estimates. The 2-year yield rose 2.0 bps to 2.55% while the 10-year yield settled up 1.1 bps. Despite the directional reversal, the overnight flattening trend held. The spread between the 2-year and 10-year yield reached a new cycle low of 31.9 bps. The Dollar was stronger but halved its daily gain late in the session as the Euro bounced on reports of positive developments around infighting among members of the German governing coalition.