Observations Of The Credit Cycle Moving Into FOMC
The flows setting the stage for a larger structural change
The Feedback Loop Driving Macro Flows:
Over the last trading week, credit spreads have continued to compress, indicating that financial conditions remain highly accommodative. This is further reflected in low-quality stocks in the US (white line) maintaining their bullish trend. Additionally, the Z-Score of low quality sectors remains in positive territory, which indicates the strength of the trend in the credit cycle we are currently seeing.
This function of low-quality sectors rallying is directly linked with the logic I laid out for long-end rates here:
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