Weekly Risk Signals

Last week’s intermarket movements continued the slow migration towards more risk-off conditions, but not a sharp or sudden reversal just yet. I think September is looking like the point in time where we may see a broader pivot to risk-off conditions. Lumber prices have been declining for a while now. The wild card this week could be China.

All four signals now move to risk-on, although the dynamics affecting them aren’t necessarily traditional. Conditions overall appear to be deteriorating in the face of a potential credit event. Outside of just those two events, we’re seeing global liquidity starting to shrink and corporate bankruptcies on the rise. None of this precludes equities from moving higher in the short-term, there are some serious cracks in the dam that might eventually break.

The Bank of Japan’s decision last week failed to result in the risk-off sentiment change that I thought it would. This is traditionally the time of year where the calm and steady markets of the summer months begin turning more volatile. I think we’re headed in that direction again. We’re also approaching the point where the lagged effects of rate hikes start really showing up in the economy.