Stocks finished mixed Tuesday, while the dollar traded at the highest levels in two decades and Treasury bond yields flashed another recession warning, as investors enter the holiday-shortened week focused on growth and inflation prospects in the world's biggest economy.
The Atlanta Fed's GDPNow growth forecasting tool suggests the economy is contracting sharply as it enters the third quarter, at -2.1%, following what is likely to be two consecutive quarters of shrinkage between January and June.
That won't automatically define recession -- that is ultimately the task of the The National Bureau of Economic Research -- but it's enough of a downturn to trigger changes in investment, financing and, perhaps, reaction functions from the Federal Reserve, which may opt to slow the pace of rate hikes needed to tame inflation in order to limit their impact on economic growth.
Minutes of the Fed's June policy meeting, set for publication on Wednesday, could provide some insight into the Fed's thinking on growth and inflation and will be closely-watched for any suggestion that easing inflation pressures, or a downturn in job growth, could trigger a re-think from Fed Chair Jerome Powell and his colleagues.
Jobs data, in fact, will also loom large on Wall Street this week, with the June employment report slated for Friday at 8:30 am Eastern time. Analysts are looking for a softer gain of 270,000 net new jobs for the month, with only a modest 0.3% gain for average hourly earnings and a headline unemployment rate of 3.6%, unchanged from the final May tally.
At present, however, markets are still betting on a 90% chance of a July rate hike of 75 basis points from the Fed, with an 82.3% chance of a follow-on move of 50 basis points in September.
That's keeping the U.S. dollar trading at the highest levels in 20 years against a basket of its global peers, but it's also tipping Treasury yields into a so-called inversion - where 2-year note yields trade higher than 10-year notes.
According to a study from the San Francisco Federal Reserve, a sustained inverted yield curve has preceded all of the nine recessions the U.S. economy has suffered since 1955, making it an extremely accurate barometer of financial markets sentiment.
Benchmark 10-year notes were last seen trading at 2.829% while 2-year notes were changing hands at 2.827%.
Still, growth concerns kept European stocks in the red this morning, with the Stoxx 600 falling 2.08% by the close of trading Frankfurt, following on from a modest 0.07% gain for the Asia-region MSCI ex-Japan index.
On Wall Street, the Dow Jones Industrial Average finished down 129 points, or 0.42%, to 30,967, while the S&P 500 gained 0.16%, while the tech-focused Nasdaq was advanced 1.75%.
The Dow had been down more than 700 points earlier in the session.
Tesla (TSLA) shares gained 2.6% even after the carmaker posted a rare slump in quarterly deliveries and reports suggest two of its four key factories will go dark for two weeks over the month of July.
Exxon Mobil (XOMA) shares fell 3.1% after the oil and energy giant indicated a likely record surge in second-quarter profits.
WTI futures for August delivery were marked $8.78 lower in late Tuesday trading at $99.70 per barrel while Brent contracts for September, the global pricing benchmark, fell $10.47 to $103.03 per barrel.
