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Stocks extend losses on recession concerns; oil sinks on Biden release plan

crude oil

Asia markets are set to open lower as Wall Street extended losses in the overnight session on economic concerns. US stocks closed higher in the month but registered the first quarterly losses since March 2020. Oil prices plunged on the news that US President Joe Biden's administration plans to release 1 million barrels of oil from its reserve to counter the war-induced supply shortage. At the same time, OPEC+ decided to stick with the output increase of 432,000 barrels per day in May. The benchmark US bond yields inverted for the first time since 2019, increasing concerns that a recession may near.

SPI futures are pointing to a 0.6% drop on the S&P/ASX 200. Energy stocks may face pressure amid the US plan to release the oil reserve.

The NZX 50 was down 0.3% in the first half an hour trading.

US and EU stocks

The Dow Jones Industrial Average fell 1.56%, the S&P 500 declined 1.57%, and Nasdaq was down 1.54%.

All of the 11 sectors in the S&P 500 closed in the red, with bank stocks leading losses amid concerns of a flattening yields curve. All of the US major lenders, including JP Morgan Chase, Citigroup Inc., and Wells Fargo, were down between 2-3%.  

The mega-cap tech giants also finished lower by 1-3%, among which Apple fell 1.71%, Amazon was down 2%, and Tesla declined 1.45%. The chipmaker Advanced Micro Devices declined 8.25% after being downgraded to underweight by Barclays. GameStop shares surged in extended trading after the company said it planned to implement a stock split.

The energy sector suffered from plunging oil prices, down 1.39%. But the airline stocks saw benefits of lower cost of fuels, with most of the major carries finished higher.

On the economic front, the US February consumer spending rose less than estimated, while personal income rose 0.4%, which was in line with expectations. Core Personal Consumption Expenditures Index rose 0.4% MoM, 5.4% YoY, indicating an ongoing price pressure on consumers. The weekly jobless claims were recorded at 202,000, more than the forecast of 195,000.

The European major indices also finished lower as Russia insisted on rouble payment for gas supply. The Stoxx 50 was down 1.43%, DAX dipped 1.31%, and CAC 40 fell 1.21%. The FTSE 100 was down 0.83%.

Treasuries

US bond yields steadied on Thursday, inching lower than the 3-year highs. The 10-year US Treasury yield fell slightly to 2.34%. The 2-year Treasury yield edged higher to 2.33%. The 10-year and 2-year yield spread are usually used by economists to forecast economic health. When the spread is near zero or inverted, it flags a slowdown in economic growth and a near-term recession.

Australia's 5-year bond yields rose to 2.63%, with the expectation for the RBA to increase interest rates several times in 2022.

Commodities

Oil prices slumped on the Biden plan to release the oil reserve by 1 million barrels and a possible amount of 180 million barrels in the next 6 months. However, it is only a temporary solution to curb the surging energy prices. Russia’s production is roughly 8-10 million per day, which is a significant drawdown on the oil supply in the long run.

The WTI futures fell 6.43%, to US$100.89 per barrel. Brent slipped 5%, to US$105.70 per barrel.

The natural gas prices advanced 0.37%, to US$5.63 per million British thermal units as Russia insists on rouble payment for its gas supply and threatens to halt active natural gas contracts.

The NYMEX gold futures rose slightly to US$1,942.3 per ounce.

Currencies

The US dollar strengthened against most of the currencies but weakened against the Japanese Yen as the bond selloff slows in the Japanese holdings. The eurodollar was down 0.82% against the USD, to 1.1066. The USD/JPY fell for the third straight day, down 0.13%, to 121. 71. The commodity currencies, such as AUD, NZD, and CAD, were all down against the greenback.

Cryptocurrencies

The major Cryptocurrencies fell due to risk-off trades. Both bitcoin and Ethereum were down 3%, to US$45,800 and US3,300 respectively. But Solana outperformed again, up 3.46%, to US$124.57.


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