Trader: Markets Have Entered A "Terribly Negative Dynamic"

After issuing a dire warning first aimed at Italy, which he said is "on the verge of inducing a fresh European crisis", followed with an ominous prediction that "Turkey's goose is cooked", overnight Bloomberg macro commentator and ex-Lehman trader Mark Cudmore looks at the bigger picture, and in his latest Macro View note he is yet again especially dour, warning  that the Italian and EM shocks will spill over, and that "global equities will slump amid a shortage of good news", predicting that "the next couple of weeks are filled with many potential negative catalysts for global equities but there’s little left on the calendar that might offer respite."

His conclusion: the market has entered a "terribly negative dynamic that might temporarily overwhelm any bullish economic considerations." Read why in his full note below.

Global Equities to Slump Amid Shortage of Good News: Macro View

The short-term outlook is dire for global equity markets.

For most major market themes, the marginal newsflow from here is likely to be negative for risk assets.

Turkey’s freefall will continue to weigh on the rest of EM. At this stage, any reluctant emergency monetary policy to defend the lira will only stem losses. Rather than turn the tide, it’ll confirm a crisis has taken hold.

On trade, after the relief of ceasefire between China and the U.S., the next development can only be a re- escalation of tensions.

In Italy, the president has no good options as far as markets are concerned. If he blocks the coalition, it’ll leave the country in limbo and stir up popular resentment before new elections. But if he approves the coalition, then it’s even more worrying because of the government’s fiscally irresponsible proposals.

Oil prices have risen too far, too fast and are rapidly increasing costs for business and consumers globally. A backdrop of dollar strength exacerbates the oil price move in other currency terms. But a retracement would hurt hedge funds and speculators who have very large long positions.

U.S. yields are at the highs of multi-year ranges and there’s still plenty of supply this week. Climbing yields will pressure risk assets. But a Treasuries rally -- perhaps on a bout of risk aversion -- would squeeze the massive speculative short position, causing more losses and contagion.

So we’re in the relatively unique situation where a major yield move in either direction will be negative for equities.

The earnings season has come and gone and failed to raise U.S. equities out of their range. That was the most positive reason to buy stocks and it’s now behind us.

In conclusion, the next couple of weeks are filled with many potential negative catalysts for global equities but there’s little left on the calendar that might offer respite.

It’s a terribly negative dynamic that might temporarily overwhelm any bullish economic considerations.

Fonte: qui