As his SocGen colleague (and purported permabear) Albert Edwards seized the opportunity to draw parallels between contemporary markets and the circumstances surrounding the 1987 market crash, the French bank's chief currency strategist Kit Juckes offered a more measured - but still bearish - outlook on global markets during a Thursday afternoon interview with Bloomberg.
"We're done on the bull market. We're done on the economic cycle. We're not in free-fall, but the best days are behind us. It's winter." -Societe Generale's Kit Juckes with @flacqua https://t.co/W4xACMMHti pic.twitter.com/XVpvssGlkP— BSurveillance (@bsurveillance) October 25, 2018
As US equities entered full "dead-cat bounce" mode, Juckes explained how there was no one overweening factor driving the 'Shocktober' selloff. Rather, a handful of risks that have been looming on the horizon for most of 2018 have finally been brought to the forefront as companies slashed their forward guidance, forcing investors to confront the myriad risks created by the global tightening and the Trump trade war, a reckoning that has sapped them of their confidence in the seemingly never-ending business cycle. The business cycle is back, Juckes said. And while we might not be in "free fall" mode, it's becoming increasingly clear that "winter is coming."
"I'm expecting a downward trend and more volatility. We're done on the bull market we're done on the economic cycle we're not in free fall but the best days are behind us. It's winter.
Emerging markets have been responding to fears about tighter monetary policy for months. But now that fear has finally transferred from ROW to the US. We've passed the turning point, Juckes said, and while the downturn might not be as vicious as the last crisis - Juckes refused to affix a magnitude to his prediction - one outcome is looking increasingly likely. Markets are heading south from here.
"We're now coming from emerging markets to developed markets because in the corporate sector, there are now headwinds for corporate profitability that weren't there before. I think confidence is just taking a tip down. In that sense, in each country in each market you can find an idiosyncratic cause that started with the global tightening and the repeal of post-crisis easy money."
Asked if technical factors drove Wednesday's selloff, Juckes said that fundamentals are a bigger factor. Ultimately, the selloff was rooted in the mass psychology of markets. And when investors are on edge, the impact of bad news is easily amplified, like EM FX traders saw yesterday with South Africa's budget announcement.
"I think it means now that we're all going to all join in selling on days when things start going down. It's still very patchy, you'll get bounces, but we had a very lively conversation yesterday about the reaction to the announcements in South Africa and why it's good and what could happen next...when things are going down generally, a bit of bad news can have even more impact."
But predicting how deep the selling might go is a waste of time, Juckes said, as analysts are notoriously terrible at making these types of precise predictions (an assertion to which, we imagine, many of his peers might object).
"The big test for everything will be how deeply a global economic downturn is. One of the things that's happened is the economic cycle is back partly because of US fiscal policy partly because of US trade policy but globally there's a cycle again...and there's a cycle that saw an acceleration followed by a slowdown. We are rubbish in my profession at forecasting the depths of the slowdown, but we're slowing.
But, Juckes conceded (somewhat ironically), investors can at least take comfort in the fact that leverage in developed markets isn't at the same level we saw before the crisis...
"The comfort you get in this cycle is there doesn't seem to be the same degree particularly in developed markets in terms of excess borrowing like we had in the last crisis we don't have an inflation spike so central banks will have to tighten into a slowdown...if you think the Fed's overtightened already, they haven't gotten very far, so they could reverse. I can't think of a good reason why we ought to have a US recession or a global recession - I can't think of a good reason why we should. But I can think of even fewer reasons why things should get better from here."
...indeed, it's actually heavier.
But who wants to think about that? Certainly not Juckes - or SocGen's clientele.