Key facts
- Oil prices fell sharply, with Brent crude dropping below $90 a barrel.
- U.S. Treasury yields slid significantly, with the 10-year yield seeing its biggest fall in two months.
- Wall Street stocks rallied, with the S&P 500 and Dow gaining 0.3%, and the Nasdaq rising 0.7%.
- The U.S. dollar weakened, while Bitcoin surpassed $80,000 and the Chinese yuan strengthened against the dollar.
- Canada imposed $20 billion in retaliatory tariffs on U.S. goods, escalating the trade war.
Oil prices experienced a significant decline on Monday, with Brent crude falling back below $90 a barrel. This drop coincided with a rally in U.S. Treasury yields and a broad rise in Wall Street stocks. The market movements were influenced by escalating trade tensions between the United States and Canada, as Canada imposed retaliatory tariffs on $20 billion worth of U.S. goods. Additionally, concerns surrounding U.S. Treasury policy, particularly regarding bond buybacks, contributed to market sentiment.
In the bond market, U.S. Treasury yields fell as much as 8 basis points, marking the biggest drop in the 10-year yield in two months. The yield curve flattened, and a Treasury auction for 5-year notes saw good demand from indirect bidders. The U.S. dollar also weakened, while Bitcoin surged above $80,000. The Chinese yuan traded at its strongest level against the dollar since February 2023, nearing the 6.70 level.
Economically, Germany showed signs of momentum, with Q2 GDP growth revised upward and business sentiment reaching its highest point in a year. This contributed to a surge in Citi's European economic surprises index to a three-and-a-half-year high, widening the gap with the U.S. economic surprises index. Meanwhile, U.S. Treasury Secretary Scott Bessent faced criticism from investor Stanley Druckenmiller regarding his decision to increase long bond buybacks, a move Druckenmiller argued cannot fix solvency issues.
In commodities, gold prices rose to a three-month high, alongside the fall in oil prices. The escalating U.S.-Canada trade dispute, involving tit-for-tat tariffs, casts a shadow over the USMCA trade agreement and has wider implications beyond North America.