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Global bourses have been on a roller coaster ride this year. In order for stock prices to hit a durable floor, the Fed has to back off from its tightening bias, thereby triggering a reversal in U.S. dollar strength… Meanwhile, U.S. economic recession risk has ratcheted higher despite declining oil prices. Importantly, the Philly Fed’s U.S. state activity diffusion index is closing in levels that have accurately predicted U.S. recessions since the early 80s… Animal spirits are already fading, as measured by sinking CEO confidence. That is consistent with ongoing equity market struggles (see chart). Financial stress remains glaring in the corporate bond market. Every single sector is sending a distress signal, i.e. overall credit quality is deteriorating. This message is corroborated by the rapid deterioration of the global corporate balance sheet: not only is net debt rising, but cash flow is also declining. The implication is that there is more downside for global equities. (Source: BCA Research Blog)


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