Bluntly put, term spreads moved toward inversion, and inflation expectations adjusted for premia increased. VIX has been elevated since February 2022, and GeoPolitical Risk rose in the period right after the invasion. Growth, which had been accelerating according to weekly indicators, then decelerated. In other words, “Thanks, Putin”.
Category Archives: financial markets
Revisiting Exchange Market Pressure
Linda Goldberg and Signe Krogstrup have a revised version of a paper entitled “International Capital Flow Pressures and Global Factors”. They write:
Recession Probabilities Incorporating Foreign Term Spreads
Foreign term spreads in several major financial centers have inverted (you can see the yield curves here). What is the probability of a recession 12 months ahead, using the 10yr-3mo term spread, the foreign (Germany, UK, Japan, Canada) 10yr-3mo term spread, and the national Financial Conditions Index (FCI), as suggested by Ahmed and Chinn (2022)? Answer: High
Term Spread Recession Forecasts for January 2024
Plain vanilla probit models indicate a high probability of recession, especially using the 10yr-3mo spread:
Market Expectations on Fed funds, Spreads, Inflation post-CPI Release
Lower on Fed funds at February meeting. Don’t see much movement on spreads, despite talk of a pivot, and the possibility of a soft landing.
Maximum AUROC Spreads as of 12/25/2022: Recession Ahead, and If So, When?
In 2019, Fed economist David Miller undertook a comprehensive assessment of term spread predictive power for recessions (There is No Single Best Predictor of Recessions). For the 1984-2018 period, he found the following:
The Chinn-Ito Financial Openness Index Updated to 2020
We first constructed the index 20 years ago (Chinn and Ito, NBER WP No. 8967)! See the website for the data.
Messages from the Market
One term spread steepens sharply; only one spread has actually inverted. The five year inflation breakeven is falling. And risk is rising.
Weekly Economic Activity in the UK, and Two Self-Inflicted Wounds
So far, the UK economy is plugging along, according to the OECD Weekly Tracker (through 9/17). But (understatement of the year), challenges have arisen.
Market Expectations for Fed Funds Target, pre- & post-August CPI Release
From CME FedWatch app, in the wake of the CPI surprise.