Intermarket Analysis Throught Macro and Technical Methods

Here’s what you’ll find:

  1. Two different interpretations of the yield curve.

  2. The lead times for each and the projected window for the next recession.

  3. The four main leading reports and the causal role the yield curve plays in each.

  4. The two key risk sources we believe could trigger a potential recession.

  5. The current state of our positions.

  6. A technical setup for a recessionary economy and the first warning sign to watch.

  7. A full technical analysis of the chosen vehicle, including a breakdown of each indicator used—this is a new addition to our usual format.

Lastly, we’re taking a well-deserved break.The service will be on pause for two weeks.

See you when we’re back!

 Causality between the yield curve and leading indicators.

It’s not just correlation—the yield curve actively shapes expectations, credit conditions, and investment decisions.
That’s why many leading indicators end up reacting to it.

Lately, some have questioned that the yield curve effectiveness as a leading indicator of recessions. Back on July 29, 2024, we published a piece on the topic, using the last four recessions as a sample.


 We looked at the curve from two angles:

  1. The date of the inversion

  2. The date of the first rate cut

  1. The yield Curve inversion, July 22

 The most recent curve inversion began in July 2022 (red zone in the chart) and ended in August 2024. Let’s look back at history to see the lead times of past inversions.

 On average, the last four inversions anticipated the next recession by 27 months. That average points to October 2025 as the expected timing.

We’ve seen cases like 1990, with a lead time of 33 months, which sets March 2026 as the latest possible date.

As of today, the curve inversion still holds a 100% success rate.

2 Date of the first rate cut as a leading indicator of a recession.

The first rate cut in this cycle happened in September 2024.

In the last four recessions, the first rate cut anticipated the start of the recession by almost 9 months on average.

That projects the timing to June 2025.In other words, right about now. The maximum lead time was 15 months, which sets December 2025 as the latest possible date.

The yield curve: First Cut Historic Perspective

We line up the timeline using both methods

The yield curve Leading time using Averages

Stay with me on this.If both interpretations hold a 100% success rate based on previous recessions, then the time window to hold that condition runs from June 2025 to December 2025.

Outside that window of time, the condition no longer holds.

Of course, this is assuming that history repeats itself. Obviously, we know that’s not the case, but we also know that it always rhymes with the past.

Causality: The curve and other leading indicators

The yield curve and Building Permits – Gray areas mark past recessions

The rise in interest rates for the construction sector is likely where the effect is most visible across the economy.
An increase in short-term rates slows down construction loan applications. It’s simple common sense – higher borrowing costs directly eat into builders’ margins. A sufficiently large rate hike can literally halt construction, consuming all profitability. Of course, this is a gradual process; not black and white, but a gray area that darkens as rates climb.

Now consider long-term rate increases. Here, the impact comes through demand. More expensive mortgages reduce housing demand, which eventually affects supply through price adjustments. Economics 101.

The yield curve and Initial Jobless Claims (4-week average) – Gray areas mark past recessions

Continuing with the example above, as production stalls, unemployment in the sector rises. In this specific case, the variable is reflexive—it shifts from white to black almost instantly. Higher unemployment directly translates into lower consumption, which in turn generates even more unemployment. In an economy where 70% relies on consumption, this sends joblessness skyrocketing at alarming speed.

The yield curve and Consumer Expectations – Gray areas mark past recessions

Consumer Expectations and the Rate Hike Paradox…..

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You can find us at intermarketflow.com and on X @intermarketflow.

See you soon, 

Martin

 
 
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