Bringing back their Topic of the Week, Jeff Mayberry and Samuel Lau review a raft of leading and coincident recession indicators (14:49), weighing their historical track records for predictive accuracy and noting what those gauges are saying now. The podcast hosts start with a survey (2:32) of the broad rally in U.S. equities for the week of Sept. 6-9, led by consumer discretionary and materials. Turning to fixed income (5:14), they note higher yields across the U.S. Treasury curve. That move helped push the investment-grade Bloomberg US Aggregate Bond Index to a negative weekly return of 60 basis points (bps) while riskier credits enjoyed positive returns of 2% for high yield corporate bonds, 1¼% for emerging markets debt and 1% for bank loans. The commodity market (7:05) put in a flattish negative 40 bps as measured by the Bloomberg Commodity Index.
In terms of the Sept. 6-9 week’s macro news (9:30), Jeff and Sam find most notable comments by Federal Reserve officials (10:46) before the Sept. 10 start of the blackout on Fedspeak ahead of the Sept. 21 rate-setting meeting of the Federal Open Market Committee. Jeff Mayberry ventures his interpretation of two comments by Fed Vice Chair Lael Brainard: that the Fed will tighten “as much as it takes” to reign in inflation and that gaps between policy actions and economic impacts pose a risk of overtightening. Interpretation: a 75 bp hike in the Federal Funds rate is coming Sept. 21, but perhaps Fed officials are already thinking about moderating hikes further out. The Federal Funds rate futures market, Samuel Lau observes, is pricing that key rate at 4% by the end of 2022.
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