The current market regime reflects an environment of accelerating growth and re-accelerating inflation, consistent with the regime observed a week prior. The Growth (G) index remains strong at 1.0, indicating continued acceleration, supported by a year-over-year industrial production growth rate of 1.18% and a quarterly growth delta of 0.84%. Inflation (I) also persists in its upward trend with a year-over-year CPI increase of 3.11% and a three-month delta of 0.35%, reinforcing the re-acceleration narrative.
In terms of financial conditions and interest rates, the regime has shown stability with a few notable changes. Financial conditions remain tight, as indicated by the score of 0.87, which is slightly eased from the previous week’s 0.90, reflecting a minor relaxation in constraints. The federal funds rate is stable at 4.09%, while the 2-year Treasury yield has decreased slightly from 3.55% to 3.45%, suggesting a modest improvement in short-term borrowing conditions.
The rate curve remains flat, with the spread between the 10-year and 3-month yields narrowing to 0.18% from 0.28%. This flattening is accompanied by a slight decline in the 10-year Treasury yield from 4.1% to 4.0%, while the 3-month yield remains constant at 3.82%.
Credit conditions continue to indicate compressed spreads, with the high-yield spread z-score decreasing to -0.96 from -0.82, and the percentile falling to 7.38 from 14.50. The high-yield value has improved slightly from 3.17% to 3.0%, suggesting increased investor confidence and a reduction in perceived credit risk.
Overall, the current market regime is characterized by robust growth and inflation dynamics, with relatively tight financial conditions, a flat rate curve, and compressed credit spreads. These conditions suggest a cautiously optimistic economic outlook, albeit with underlying risks of inflationary pressures and potential rate adjustments.
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