When you put together all the variables — credit conditions, corporate bond spreads, interest rates, stocks, home prices and more — the macroeconomy is in really poor health.
Societe Generale’s Financial Conditions Indices (FCI) are currently at their weakest levels since the collapse of Lehman Brothers.
At current levels FCIs act as a 1.1 per cent drag on euro-area GDP and 1.5 per cent on U.S. GDP over the next four quarters.
SocGen analyst Michala Marcussen says next week could see some improvement in FCI levels if European officials ratify the European Financial Stability Facility. For real improvement though, markets need a solid policy to deal with sovereign contagion, boost resilience in the global financial system and reassure investors that policymakers are committed to the stability of the euro area.
Note: The two FCIs are not directly comparable and do not suggest that there is more stress in the U.S. at the moment than in the euro region.
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