Only two charts from yesterday merit updating today, one the result of a bounce in stock prices and a drop in fear, the other the result of a further decline in 2-yr swap spreads.
When stock prices move inversely to fear (as proxied in the above chart by the ratio of the Vix index to the 10-yr Treasury yield), it's a good bet that emotions are the primary driver. More and more this looks to be the case with the recent volatility in global equity markets.
Swap spreads typically lead or track credit spreads, but not recently. 2-yr swap spreads in the U.S. are now a mere 14 bps, while high-yield spreads remain somewhat elevated. Equity and corporate bond markets are nervous about a deceleration in China's growth and a possible slowdown in the U.S. economy. But swap spreads are about as low as they get, which is a good sign that markets enjoy a healthy degree of liquidity and a virtual absence of systemic risk. This further suggests that elevated fears may be groundless—since they are as yet unaccompanied by any deterioration in the financial and economic fundamentals.
The next two charts are updated versions of ones I have featured periodically. Both show that the commercial real estate and construction markets are quite strong. As such, they lend support to the notion that the economic fundamentals have not deteriorated, and the market's fears are arguably misplaced.
According to the folks at Co-Star, commercial real estate prices are booming. Prices have been rising at a 12-14% rate for several years now. This is one of the strongest economic indicators I've seen.
New business on the books of the nation's architectural firms is increasing, according to a survey by the AIA. This points to increased commercial construction activity over the next year.
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