Macro-Markets Risk Index Falls From Highs But Still Predicts Growth
James Picerno | Aug 06, 2014 07:03AM ET
The economic trend for the US remained positive in early August, albeit at a relatively subdued level in comparison with recent history, according to a markets-based estimate of macro conditions. The Macro-Markets Risk Index (MMRI) closed at +7.7% yesterday (August 5), or near the lowest level in two years. The latest reading is also well below MMRI’s recent peak of +13.7% in mid-June of this year. Nonetheless, the persistent run of positive numbers suggests that business cycle risk remains low. A decline below 0% in MMRI would indicate that recession risk is elevated. By comparison, readings above 0% imply that the economy will expand in the near-term future.
MMRI represents a subset of the Nowcasting The Business Cycle
MMRI measures the daily median change of four indicators based on the following calculations:
• US stocks (S&P 500), 250-trading day % change, plotted daily
• Credit spread (BofA ML US High Yield Master II Option-Adjusted Spread), inverted 250-trading day % change, plotted daily
• Treasury yield curve (U.S. 10-Year Treasury yield less U.S. 3-Month T-bill yield), no transformation, plotted daily
• Oil prices (iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE:OIL)), inverted 250-trading day % change, plotted daily
Here’s how MMRI compares on a daily basis since August 2007:
Here’s a closer look at how MMRI compares on a daily basis over the past year:
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