US: Tightening financial conditions - AmpGFX

The Bloomberg US financial condition index shows significantly tighter conditions since the September FOMC, although only back to levels in April this year, points out Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“Money-market spreads are narrower since earlier in the year, although they too have risen in recent months. This suggests that the Fed might not need to hit the pause button yet.  However, it has hiked twice more since April, so rates are closer to neutral, and corporate bond credit risk has risen to new highs.”

“At this stage, the market might be right to presume a hike is coming in December, but it is not in the bag.  If market volatility picks up and financial conditions tighten further, then the Fed could decide to pause, or at least use its press conference to suggest further tightening in 2019 might be kept in the bag pending clearer evidence that economic momentum is being maintained despite tighter financial market conditions and increased perceptions of risk in the global and US economy.”

“A broader tightening in US credit conditions may reflect increasing market concern over the impact of US trade policy.”