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On the radar: St. Louis Fed’s Financial Stress Index only a tad less relaxed in week ended July 13

The St. Louis Fed’s Financial Stress Index rose a tad in the week ended July 12 to -1.359, not materially different from the -1.376 in the July 5 week. Markets got a strong signal that the FOMC will cut short-term rates at the July 30-31 meeting even as there were other cross-currents that slightly diminished a boost from anticipating lower rates. However, the index is posting low readings not seen since early 2018 and showed a relaxed sense toward overall conditions.

That may change in the next week when the data will reflect developments in the leveraged loan market. The Fed and others have warned about vulnerabilities there. The abrupt decline in the value of the Clover Technologies loan — while not large compared to the overall market — may take a bite out of the sense that financial markets are sound in spite of record highs for stocks and wider spreads on Treasury yields.

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