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Bond Yield Inversion May Lead To Sell-Off On Wall Street

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With traders keeping a close eye on developments in the bond markets, stocks may come under pressure in early trading on Wednesday. The major index futures are currently pointing to a sharply lower open for the markets, with the Dow futures down by 394 points.

Concerns about a potential recession may weigh on Wall Street after the yield on the benchmark ten-year note dropped below the yield on the two-year note earlier this morning.

The inversion is widely seen as an indicator of a recession, although data from Credit Suisse shows the economic downturn typically does not occur until almost two years later.

The yield on the closely watched thirty-year bond has also shown a notable decrease, tumbling to a new record intraday low.

Negative sentiment may also be generated in reaction to a disappointing batch of Chinese economic data, which may add to concerns about the global demand outlook.

Overall trading activity may be somewhat subdued, however, as traders look ahead to an avalanche of U.S. economic data on Thursday.

Traders are likely to keep a close eye on the latest reports on weekly jobless claims, retail sales, and industrial production.

However, traders will also be presented with data on regional manufacturing activity, labor productivity and costs, business inventories, and homebuilder confidence.

The Labor Department released a report this morning showing import prices in the U.S. unexpectedly showed a modest increase in the month of July.

Import prices rose by 0.2 percent in July after plunging by a revised 1.1 percent in June, while economists had expected import prices to come in unchanged.

The report also showed an unexpected uptick in export prices, which crept up by 0.2 percent in July after falling by a revised 0.6 percent in June. Export prices had also been expected to come in unchanged.

Stocks moved sharply higher in morning trading on Tuesday and remained firmly positive for the remainder of the session. With the jump on the day, the major averages offset the steep losses posted on Monday.

The major averages pulled back off their best levels of the day but remained firmly positive. The Dow jumped 372.54 points or 1.4 percent to 26,279.91, the Nasdaq soared 152.95 points or 2 percent to 8,016.36 and the S&P 500 surged up 43.23 points or 1.5 percent to 2,926.32.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1 percent, while China's Shanghai Composite Index rose by 0.4 percent.

Meanwhile, the major European markets have shown significant moves to the downside on the day. While the German DAX Index has plunged by 2 percent, the French CAC 40 Index is down by 1.8 percent and the U.K.'s FTSE 100 Index is down by 1.4 percent.

In commodities trading, crude oil futures are tumbling $1.62 to $55.48 a barrel after soaring $2.17 to $57.10 a barrel on Tuesday. Meanwhile, after falling $3.10 to $1,514.10 an ounce in the previous session, gold futures are climbing $8.50 to $1,522.60 an ounce.

On the currency front, the U.S. dollar is trading at 105.95 yen compared to the 106.74 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.1177 compared to yesterday's $1.1171.

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