Global | Market implied recession probability

Summary

We estimate market-implied recession probabilities using logit models on daily financial variables across asset classes in the US and Euro Area. The results show strong forecasting power, often leading official recessions, and helps identify markets under stress, with deviations mainly driven by policy interventions.

Key points

• Key points:
• The methodology delivers strong recession-forecasting performance, with market-implied probabilities typically leading or coinciding with officially dated recessions
• Using asset-by-asset signals enhances interpretability, allowing identification of stressed segments of the market and the underlying macro narrative
• Apparent false positives mainly arise when monetary, fiscal, regulatory, or verbal policy actions successfully offset emerging recession risks
• Key leading indicators are the S&P 500 and High Yield spreads in the US, and High Yield and Italy–Germany sovereign spreads in the Euro Area
• Following a brief period of elevated risks driven by Tariff shocks last April, our latest readings show that market-implied recession probabilities remain low

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