We systematically track the evolution of financial conditions and their underlying drivers. We intend to share regular updates of these systematic monitors with our donors on a more exclusive basis (so long as it does not compromise our public mission). This monitor is a reflection of how we think macroeconomic and policy dynamics are affecting financial conditions and, by extension, our assessment of the economic growth outlook.
Takeaways:
- Financial conditions are looking more balanced this past week: Implied volatility is generally trending lower, even as there were marginal sources of tightening (equities, credit spreads, Treasury yields, dollar). The upcoming week is likely to be colored by GDP, ECI, and PCE releases, all of which have capacity to color how the Fed signals future hikes/holds/cuts beyond the May FOMC meeting.
- Growth expectations are roughly flat this week: The data flow in the past week was mixed, with rising jobless claims weighed against more signs of "green shoots" in manufacturing and housing. Capital market conditions reflects this balance of data flow.
- Commodity Price Dynamics To Watch: Commodity prices are generally down and that should feed into lower energy and food inflation. Jet fuel and diesel prices are making new lows and are now well-off their historic highs. With the caveat that prices tend to go up like rockets and down like feathers, these two dynamics should help to lower goods and airfare inflation.
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