The St. Louis Fed’s Financial Stress Index moved higher to -1.355 in the week ended August 2, up from -1.367 in the prior week. Recent weeks have been within reach of lows not seen since January 2018. However, the readings are likely to deteriorate in the coming week. Friday, August 2 saw the first blast out of the White House with higher tariffs on goods from China. This worsened the performance of equity markets early in the next week and wasn’t helped by the announcement that the White House had designated China a currency manipulator. Although it would be hard to characterize even a big jump in stresses as bringing conditions to a worrisome state, it does indicate that financial markets are probably going to be more sensitive to the news cycle and focused on risks.
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