Oil falls with dollar on recession fears; Wall Street ends mixed

  • Oil hits lowest level before Ukraine as demand outlook deteriorates
  • The Bank of England predicts a recession throughout 2023
  • Treasury yield curve inversion deepened
  • The dollar falls, the pound falls against the euro

OTTAWA (Reuters) – Crude oil fell along with Treasury yields and the dollar on Thursday as recession fears escalated after the Bank of England warned of a long-term recession and ahead of the highly anticipated US jobs report on Friday.

Wall Street closed mixed, with gains in high-growth stocks offset by a drag on energy stocks, as a major US jobs report appeared on the horizon on Friday.

S&P 500 . Index (.SPX) It fell slightly to 4,151.94, retreating from a two-month closing high in the previous session.

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daw (.DJI) It fell 0.26% to 3,2726.82 from near a three-month high on Wednesday.

Nasdaq (.NDX)Despite this, it swung to a gain of 0.44% to 1,331,041 from sharp early losses, extending a three-month peak.

The two-year Treasury yield fell 7.1 basis points to 3.0366%, while the 10-year yield fell 6.3 basis points to 2.6846%.

The gap between them widened to 39.2 basis points earlier in the day, the deepest reversal since 2000. The inverted curve is often seen as foreshadowing a recession.

Crude oil prices have fallen to levels last seen before the Russian invasion of Ukraine. Brent crude futures closed down $2.66 at $94.12, the lowest close since Feb. 18. West Texas Intermediate crude futures closed as low as $2.34 at $88.54, the lowest close since February 2.

Traders expressed concern that any stagnation could dent energy demand, while an unexpected rise in US crude inventories has also weighed on prices, which have jumped to more than $120 a barrel this year.

The economy is not currently in a recession, but the risks of it happening have risen, Cleveland Fed President Loretta Meester said on Thursday, while reiterating the central bank’s determination to continue aggressive tightening until there is convincing evidence that inflation is abating. Read more

The US Nonfarm Payrolls report will be closely watched on Friday for clues as to whether the tight labor market will continue to raise wages. Data early Thursday showed a rise in jobless claims. Read more

“The outlook that we are heading into a recession is clear, and the clearest signal is coming from the Treasury market,” said Edward Moya, chief market analyst at OANDA in New York.

“Things look worse abroad, there is an expectation that we will see more economic weakness by the end of the year, and it’s hard to be optimistic about stocks.”

The Bank of England achieved a larger interest rate increase of half a point earlier in the day, joining the Federal Reserve and other central banks in an accelerating race to catch inflation. But the increase was widely expected, and investors were more focused on the central bank’s warning of a prolonged recession on the way. Read more

“The main surprise seems to be the somewhat pessimistic economic outlook that we also received,” said Stuart Cole, chief macro economist at Equiti Capital.

“This is somewhat worse than what we saw in May, where expectations were for a tough quarter or two of low or negative growth, and then recovery.”

British stock index FTSE 100 (.FTSE) Not much changed, compared to the small gains of the pan-European STOXX 600 (.stoxx) After some strong corporate earnings.

The euro rose 0.59% to 0.84205 against the British pound, and rose to as high as 0.8438 at one point for the first time since July 26.

Sterling recovered despite gaining 0.12% at $1.2163 after earlier dropping to $1.2065 for the first time since July 29.

The dollar accelerated lower amid lower US yields, with the dollar index – which measures the currency against six major peers including the pound, euro and yen – down 0.68% to 105.76.

The dollar fell 0.66% to 132.94 yen, with the currency pair being particularly affected by the long-term Treasury yields.

Spot gold jumped 1.5% to a one-month high of $1,794.79 an ounce, boosted by lower US yields and a weaker dollar.

Cryptocurrency bitcoin fell 1.3% to $22.536, extending its slow decline from a 1 1/2-month high of $24676 reached on Saturday.

It failed to get a boost from Coinbase’s announcement of its association with BlackRock to provide the money manager’s institutional clients with access to cryptocurrency trading and custody services.

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Kevin Buckland reports. Additional reporting by Hugh Jones. Editing by Alden Bentley, Kim Coogle, Mark Potter and Susan Fenton

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