The liquidity and market activity were reduced on Friday. Also, it was the first day of the month and the eve of the 4th of July in the United States
The most notable move was the massive purchase of treasury bonds that made yields fall, taking the 10-year to 2.88%, levels not seen since May. This level was before the 75-bps hike by the Federal Reserve that aroused fears among investors that the federal reserve had decided on an excessively aggressive monetary policy.
But now the situation seems to have changed. The market's fear is not about excessive interest rates. The Fed funds futures market has eased considerably and is pointing at interest rates well below what was touted a month ago.
The reason is that what matters to investors now is a deep economic slowdown that may even lead to a recession. The possible causes are inflation and the conflict in Ukraine, which may lead to a lack of energy supply in Europe and rising fuel prices.
The ISM PMI manufacturing figures for June published on Friday aggravated this situation of uncertainty by revealing a drop to 53, already very close to the threshold of 50. The latter marks the difference between a growing economy and one regressing.
So, Friday's massive Treasury bond purchase can be considered a classic safe-haven move.
In the same way, the Japanese Yen appreciated (this currency also acts as a refuge) after reaching multi-year highs in its price against the US Dollar, around 137.00.
There were also falls in raw materials of various kinds, such as Copper or Wheat, a movement that reflects the expectations of lower growth in the global economy.
However, the Wall Street indices rose, the three main ones around 1%, a timid rise after four consecutive days of closings in the red.
If the market sentiment is one of risk aversion, as seen in the commodity, bond, and currency markets, the stock markets, as risky assets, should also suffer downward pressure. The question is whether these markets have already suffered very severe falls during the first half of this year and therefore have already anticipated an unfavorable economic situation. If so, they could already be bottoming out, or as other analysts point out, there are still falls left, and we only saw a mere technical correction on Friday.
During this trading week, we will have the answer. An important US economic figure will be published, such as non-farm payrolls and the unemployment rate.
Sources: Bloomberg, Reuters
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