Trading Day: Tech jitters smother inflation relief

By Jamie McGeever

ORLANDO, Florida, June 24 (Reuters) - U.S. bond yields tumbled on Wednesday as oil's slide to a four-month low eased inflation fears, although the relief wasn't felt as much in equity markets and persistent worries over tech valuations pushed the S&P 500 and Nasdaq lower.

In my column today, I look at why the dollar's surge isn't causing the consternation in global capitals one might have expected. The reason? The inflationary impact on the rest of the world is being offset by tumbling oil and energy prices.

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. Qualcomm says Microsoft, Meta will use its new AI chips

2. Bessent applauds reduction in Fed guidance, says "dot plot" should be abandoned

3. Fed's bubble blind spot is cause for anxiety: Mike Dolan

4. Some Bank of Japan members call for faster rate hikes, summary shows

5. AI wealth carve-up is job best started right now

Today's Key Market Moves

• STOCKS: South Korea +3.5%, Japan -0.8%. Europe flat, UK +0.3%. S&P 500 -0.1%, Nasdaq -0.4%, Dow +0.4%.

• SECTORS/SHARES: Germany's Rheinmetall -19%, Micron Technology +15%. Wendy's +26%. Six sectors on the S&P 500 rise, five fall. Industrials and utilities +1%, energy -1.7%. Airlines up sharply, private equity firms slide.

• FX: Dollar index rises for sixth day, hits 13-month high. Norwegian crown biggest G10 decliner, -1% on oil slump. Peru's sol -1%.

• BONDS: U.S. yields -9 bps at long end, 2s/10s curve flattest since March last year. 5-year auction draws weak demand.

• COMMODITIES/METALS: Gold below $4,000/oz, lowest this year. Silver -8%, now down 55% from January peak. Oil -4%.

Today's Talking Points

* Boom turns to ... bust?

As the end of the month, quarter, and first half of the year looms into view, price swings across all assets are accelerating, with investors rebalancing, booking profits and squaring positions. Some are particularly noteworthy.

Gold has fallen below $4,000 and is down 12% in June, on for its worst month since 2008; silver is more than 50% below its January peak, down 25% this month; bitcoin is below $60,000, down nearly 20%. Stocks remain elevated though - next in line to correct, or forming a solid base for the next leg up?

* No inflation expectations

Inflation expectations across the developed world are falling rapidly as conflict in the Middle East cools, supply routes re-open, and energy prices tumble. At least market-based expectations are falling - consumers and businesses may catch up later.

The U.S. 5-year breakeven inflation rate is 2.20%, the lowest this year, and the 10-year equivalent is below that at its lowest since April last year. One-year euro zone inflation swaps are back below the ECB's 2% target, and the 2-year UK inflation swap rate is the lowest in six months.

* Curve ball

The U.S. yield curve has been flattening for months, a move that accelerated last week after the Fed's statement and Chair Kevin Warsh's press conference. On Wednesday, the benchmark 2s/10s curve closed at 25 basis points, its flattest since March last year.

Traditionally, curve flattening is a sign of slower growth ahead. But like other textbook signals and rules of thumb, it no longer seems to apply. Recession didn't follow two years of curve inversion over 2022-2024. Should we be worried if inversion looms again?

What could move markets tomorrow?

• Developments in the Middle East

• Australia employment (May)

• Germany consumer sentiment (July)

• European Central Bank board members Philip Lane and Piero Cipollone speak

• Mexico interest rate decision

• U.S. weekly jobless claims

• U.S. durable goods (May)

• U.S. GDP (Q1, final)

• U.S. PCE inflation (May)

• U.S. Treasury auctions $44 billion of 7-year notes

• U.S. Federal Reserve officials scheduled to speak include Vice Chair for Supervision Michelle Bowman, New York Fed President John Williams, and Chicago Fed President Austan Goolsbee

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever; Editing by Nia Williams)