The move up from the August lows isn't yet what could be described as volatile but that kind of "V" shaped bottom could be setting up a move to the upside as powerful as the decline from the February - April highs.
Here's some of the ZH piece:
...Which brings us back to the topic of rolling bear markets, or as Hartnett dubs it: "Bitcoin to Popcoin", or a world in which the bursting of the Bitcoin bubble may have been the first domino:
XBT 1st FX crash of 2018…TRY, VEF, ARS, IDR, BRL, ZAR…Great EM Currency Crash of 2018 (Chart 6) to revive EM in 2019, but autumn risk is EM contagion via FX, spreads & EPS to Europe and finally US.
BofA once again reminds us of its favorite crisis indicator: the collapse of the Brazilian Real, writing that the Euro is at highs vs BRL, which "historically coincides with financial event (Chart 1)."
And while the divergence observed between the US and the rest of the world may appear unique, it has happened on various occasions in the past, most notably in 1998.
Which brings the next question: Is the current market a redux of 1998? To Hartnett the answer is yes for the following reasons:
All of these echo ’98; but one thing is missing: global contagion.
- Fed tightening,
- US decoupling,
- flattening yield curve,
- collapsing EM,
- underperforming levered quant strategies
For those who may not remember - or have been born - back in 1998 it was Japan that spread Asian crisis in ’98 (China):
Fast forward 20 years when the BofA CIO believes that this time Europe will be the epicenter of the 2018 global contagion, with the collapse in foreign orders of German capital goods -12% past 7 months – a harbinger of what is coming.
And if the foreign orders from Germany is the "canary", BofA predicts that a volatile autumn surge in the Euro - as EU investors repatriate - would "indicate EM morphing into global deleveraging event."
And if Euro repatriation in Europe is the 1st vector of contagion, BofA predicts that the second, and far more obvious one, is simply debt, or Credit contagion:...MORE
Credit spread widening the 2nd vector of contagion:In conclusion, Hartnett asks rhetorically if there has "ever been an investment acronym that didn’t end in a bubble" and notes that 4 of 8 FAANG+BAT stocks are now in bear market territory. This will also point the way to the end of the upcoming global contagion which "ends with investors selling what they own & love (see tech flows below), jump in systemic risk & the Fed blinking."...
watch credit spreads in excessively indebted Europe (credit/GDP 258%), China (credit/GDP 256% = record), EM (record credit/GDP 194%), US IG BBB ($4.93tn outstanding, up from $1.08tn ’08)."
