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On the radar: St. Louis Fed’s Financial Stress Index lowest in nearly two years

The St. Louis Fed’s Financial Stress Index was -1.380 in the week ended November 29, its lowest since -1.391 in the January 19, 2018 week. Record stock market highs and premature optimism about a trade deal with China before the mid-December deadlines for new tariffs helped bring stress to exceptionally low levels.  Some of that is likely to unwind in the next report after the Trump Administration had to walk back expectations and trade disputes with other countries were renewed.

Recession signals are still at arm’s length, but will bear watching. The gap between yields on Treasury 3-month bills/10-year notes narrowed again to 18 basis points for the week average and the 2-year/10-year notes was down to 15 basis points. Risk aversion after the drop in the stock market early in the December 2 week will probably change that direction in the coming week’s data.

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