Along with their review of a positive week July 18-22 for the broad stock (1:21), fixed income (6:43) and commodities indexes (7:50), Jeff Mayberry and Samuel Lau look at a variety of indicators that appear to signal rising odds of a U.S. recession. They note that Treasury yield curve (4:10) has already been inverted at two-year versus 10-year tenors, a gauge favored by market operators. Turning to a spread followed by academics, Sam points out that the 3-month T-bill yield as of Friday was 22 basis points higher on the week, closing in on the yield of the 10-year Treasury note. Jeff thinks “we’ll continue to see the three-month bill continue to climb in terms of rates, and that academic point will be inverted relatively soon.” 
In their review of the week’s macro news (10:28), after noting a slight increase in jobless claims, they focus on Thursday’s deteriorating Leading Economic Index, which fell 0.8% versus expectations of a 0.2% decline. With the LEI year-over-year change now at 1.4%, Mayberry notes the index is close to the sub-zero zone that, albeit subject to past false positives, is a recessionary signal (11:19). “If you couple that with the inverted yield curve, it certainly seems like a recession will be forthcoming.” In addition, the preliminary S&P Global Manufacturing PMI came in positive, but S&P Global Services PMI (12:15) came in at 47.0, down from 52.3. Sam Lau will be looking for the next ISM manufacturing and services PMI to see if those series confirm or diverge from the S&P Global Services PMI.  
The week of July 25-29 (14:58), the hosts note, will be a busy one with the Federal Open Market Committee meeting, where the FOMC is expected to raise the Federal Funds target rate by 75 basis points, and Jerome Powell’s news conference on Wednesday; the first estimate of second quarter GDP due Thursday; and the Employment Cost Index on Friday.

MMM Episode 75: A + Week for Stocks, Bonds, Commodities, But More Recessionary Signals

Monday Morning Minutes