Market Extra: Tightening of financial conditions accelerates, recession fears grow as May CPI report becomes multi-day trading event

by | Jun 13, 2022 | Stock Market

Financial markets convulsed on Monday as investors considered the prospects of U.S. inflation accelerating, not decelerating, after the release of May’s consumer-price index report. Signs of the sentiment shift since Friday’s data release were evident in the fast-paced tightening of financial conditions, plus an outlook for more aggressive Federal Reserve rate hikes.

Gains in the two-year Treasury yield, which reflect expectations for more aggressive Fed tightening, outpaced those of the 10-year rate earlier on Monday. That caused the spread between the two rates, a widely followed indicator of the economic outlook, to briefly shrink to the brink of inversion — pointing to a rising probability of recession over the next two years, said Brett Ryan, a senior economist at Deutsche Bank Securities.  In addition, the 2y1y forward real rate, a measure of medium-term expectations for how restrictive the stance of monetary policy may be relative to inflation, has risen above 1% for the first time since 2018, Ryan said via phone. All of these bond market signals are negative for risk assets, he said. The sharp selloff in stocks also continued, with the Dow industrials’ dropping as much as 900 points at one point on Monday and the S&P 500 trading in bear-market territory. Though the jury is out on whether the U.S. can avert an econ …

Article Attribution | Read More at Article Source

Share This