One gauge to measure what the market is pricing-in is the funding stress indicator.
For instance, the FRA-OIS spread in US measures the funding stress in interbank markets.
Why and when the markets stopped caring about the Russia-Ukraine conflict? A short thread🧵
The news coming in from Ukraine remains concerning with huge losses and humanitarian crisis.
But for the last 10 days the markets seems to 'Not Care' and react to the news.
Read why
One gauge to measure what the market is pricing-in is the funding stress indicator.
For instance, the FRA-OIS spread in US measures the funding stress in interbank markets.
TED spread gained a large analyst following during the global financial crisis in 2008.
The same spread had jumped to 80 from 10 during the COVID crisis scare before US Fed and other central banks stepped in.
Take a look at the graph.
What does this mean?
Because interbank markets runs financial markets to a very degree. From margin payment in f&o segment, to short term credit, to credit for economy ....
For instance the US Fed had to step in during the COVID crisis with very large reverse repo deals to maintain the interbank market. Similar trends played out during GFC 2008.
This led to a very large uptick in the 'stress indicator'.
This is no way grantees that the crisis is over but it does indicate that markets assumes this event wouldn't morph into a full blow crisis.
1. Crude Oil a backwardation has declined form a peak of 35 to 15
2. A number of commodities like aluminum, nickel have declined 20% or more after going parabolic.
3. VIX (Volatility) indices have declined appreciably globally
Keep tracking how the FRA-OIS spread moves and the other indicators mentioned in last tweet.
A further slowdown will mean that the event is entirely priced in for the short term.
A reversal will hit the markets again with volatility.
