Global markets experienced a sharp rebound today following an intense three-day selloff driven by speculation about an imminent US recession, the unwinding of artificial intelligence euphoria, and a surging yen causing a reversal of carry trades. The market reaction on Monday was extreme, with U.S. Treasury yields dropping to as low as 3.67% before being pushed back up by a stronger-than-expected US ISM services report.
In a significant statement, Federal Reserve Bank of San Francisco President Mary Daly noted that the labor market is softening, suggesting that the US central bank should consider cutting interest rates in the coming quarters. However, Daly stopped short of declaring that the labor market has begun to seriously weaken. The swaps market is now pricing in a nearly 50-basis-point rate cut by the Fed in September, reflecting growing expectations of monetary easing.
Elsewhere, Australia’s central bank maintained its cash rate at 4.35% for the sixth consecutive meeting on Tuesday. The Australian dollar remained largely unchanged following the decision, while the yield on policy-sensitive three-year bonds held steady.
Oil prices saw a rise from a seven-month low as the halting of production at Libya’s largest oil field refocused market attention on geopolitical risks in the Middle East. This development underscored the persistent volatility in the energy market amid ongoing supply disruptions.
These dynamics highlight the fragility of global financial markets, with investors closely monitoring economic data and central bank signals. As concerns over a potential US recession and global economic slowdown persist, the interplay between market reactions, central bank policies, and geopolitical developments will continue to shape market trajectories in the weeks ahead.