undefined undefined/iStock via Getty Images
This is an incredibly difficult time to write about the markets and the economy. Most of the data released in the last (and next) weeks was collected before the Russian invasion of Ukraine. That doesn’t make it useless, but it does mean it doesn’t take into account the impact of an event that could profoundly affect the global economic system. It is best to think of these pre-war reports as the definitive dates of a “before” dataset.
Let’s start with the course for commercial paper.
30, 60, and 90 Day Financial Commercial Paper Interest Rates (NASDAQ:Fred)
Commercial interest rates have risen due to the Fed’s move to more hawkish policy. However, the 90-day price (in blue) has risen sharply in recent weeks. While it is difficult to discern the actual components of the rise, it is safe to say that non-rate hike factors played a large part.
30-, 60- and 90-day rates for non-financial commercial paper (FRED)
We see the same problem in non-financial markets – large rate hikes that are likely due to more than one rate hike environment.
The reason for this is that short-term financial stress can be a harbinger of a recession.
Atlanta Fed GDP NOW (Atlanta Fed)
Atlanta Fed’s BIPNOW leaves the US barely growing in 1Q22. The blue chip consensus is slightly better. But even there, the extrapolation is around 3%.
The Kansas City Financial Stress Index is up slightly but still below its historical average:
The Kansas City Financial Stress Index (KCFSI) edged up to -0.27 in February from -0.34 in January, below its historical average.
This data point suffers from the problem I noted at the outset – it lacks data prior to the Russian invasion of Ukraine, which likely contributed to the rise in short-term trade rates.
In contrast, here is the St. Louis Fed’s Financial Stress Index:
St Louis Financial Stress Index (FRED)
This index is still negative. But it’s been ticking higher lately.
CPI is still running very hot:
The consumer price index for all urban consumers (CPI-U) rose a seasonally adjusted 0.8 percent in February after rising 0.6 percent in January, the US Bureau of Labor Statistics reported today. In the last 12 months, the overall index rose by a seasonally adjusted 7.9 percent.
Here are the corresponding diagrams:
Overall and core CPI (FRED)
Both headline (left) and core (right) CPI are rising sharply.
Finally, there is the JOLTs data:
Vacancies, Hiring and Terminations (FRED)
Vacancies (in blue) are still unusually high and continue to rise. Quits (in red) also move up with a decent clip. Rents appear to have returned to the norm.
This week’s data was worrying. There were decent upward movements on the short-term financing markets, which can be a harbinger of a recession. Inflation is also becoming a major problem.
As for the charts, here are the YTD charts for the major indices:
YTD for SPY, QQQ, DIA and IWM (FRED)
All indices are down for the year. The IWM, on the other hand, has been trending sideways between the 190-205 level since the end of January. That could be a good development. The IWM is a good indicator of risk appetite. Since this ETF isn’t moving lower, it could indicate that more aggressive traders are simply waiting. Also note that the 10- and 20-day EMAs (in blue and green, respectively) are moving sideways.
The other indices are on the decline. Note the bearish short-term EMAs. But there, too, everyone is consolidating, albeit at a lower level.
Overall, I still think it could be a lot worse.
Comments are closed.