This week’s reading: Crack 2.0 / Fragility 1.0 / Leading 0.5
Nothing broke this week. The two things that keep the Crack score at 2.0 got a little worse. The thing that would tell us it’s turning into something bigger stayed calm.
The Fed held, with a hawkish edge. On Wednesday the Fed left the target range at 3.75%–4.00% after September’s quarter-point hike. The vote was 10–2, and both dissenters, Cleveland’s Beth Hammack and Governor Lisa Cook, wanted another hike. The statement called economic activity strong and inflation elevated. Chair Warsh called the labor market in good shape and repeated that the target is 2% inflation as measured by PCE. After the decision, CME FedWatch put the odds of a hike at the December 8–9 meeting near 83%.
What’s keeping Crack at 2.0
Rates: The 30-year Treasury yield closed Thursday at 5.37%, above our 5.25% stress line. The 10-year rose to 5.05% while the 2-year barely moved (4.67%). That steepened the 2s10s spread from +0.29 to +0.38, which means the pressure is at the long end.
Oil: WTI futures are about $103 and Brent about $112, both well above our $90 line.
What’s not showing stress
Credit: High-yield spreads tightened to 314bp, below the Oct 14 low of 316. Credit is where trouble usually shows up first, and it isn’t.
Volatility: VIX closed at 17.2, well below 22.
Labor: Unemployment is 4.2% and jobless claims are 194,000, near their lowest since July.
The S&P 500 is about 1.2% below its peak. It rose roughly 1.2% over the week and slipped 0.4% Thursday.
Inflation is the story. Core PCE (the Fed’s preferred measure) rose roughly 0.3% in September by our calculation, a firm month. September CPI was 3.7% year over year. With a December hike now priced as the likely outcome, the Fed helps explain why the long end is restless.
One honest note: Our breadth reading flipped between “narrow” and “broad” several times this week. We treat single-day flips as noise and look at a week, not a day.
What we’re watching next
Mon Nov 2: ISM manufacturing
Tue Nov 3: Midterm elections
Fri Nov 6: Jobs report
Tue Nov 10: CPI
Dec 8–9: The next Fed meeting
The long end and oil carry the stress, and credit, the place trouble would show first, is calm. That’s the picture to keep an eye on.
Not investment advice. This is a macro scoreboard, not a trading signal.