US inflation expectations slump to 10-month low as recession fears escalate

US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, drop to the lowest levels since September 2021 by the end of Tuesday’s North American session. That said, the inflation gauge recently flashed the 2.30% mark, reversing the previous rebound from the yearly low of 2.33%.

The recently downbeat inflation expectations don’t rule out the inflation fears as the inversion of the 2-year and 10-year Treasury yield curve appears to hint at the global economic slowdown.

That said, Germany’s energy crisis, Italy’s drought and the Bank of England’s grim economic outlook, not to forget the strong prints of the US Factory Orders for May, were the latest catalysts that propelled the economic woes.

Amid these plays, US Dollar Index (DXY) jumped to the highest levels in two years while equities dropped, before a mild recovery, whereas the US Treasury yields refreshed one-month low while inverting the yield curve between the two-year and 10-year coupons. The S&P 500 Futures, however, struggle for clear directions of late.

Moving on, the Federal Open Market Committee (FOMC) Minutes and the US ISM Services PMI for June will be crucial for short-term market directions.

Also read: US 2s-10s Treasury Yield curve inverts, as recession fears build up