In case you did not notice it, the much discussed "range" on the SP500 broke in spectacular fashion today as the short rollers bypassed the 1250 mark in the same style as the Germany pantzer passed the Maginot line back in the early stages of WWII.

Basically, too [1] many people tried to catch the knife of the falling market (everywhere) in anticipation of just one good data point or perhaps CB intervention but nothing came. As such the pain trade is still down I think. Of course, we DID walk into the office to some JPY selling by the BOJ and the ECB finally looked outside the ivory tower to see the badlands that its stfu policy has so far engineered even if the continuing mention of inflation risks somehow strikes me as beyond crazy.  

With most market participants probably now sitting shivering in a corner wishing that today is friday there is indeed a day tomorrow and one has to assume that a bad jobs report will bring the whole world down on the back of stock investors. Blood is currently flowing but it can get worse, much worse than this. 

Given the feedback loop between our recession indicators and the SP500 with the former taking the latter as an input there is clearly now a real risk of a recession in the US and on my casual calculation it is well above 50%. 

Now, if the pain trade is still down the decision by BNY Mellon today to charge customers for holding large piles of cash indicates to me that the pendulum has swung extremely fast into uber fear mode. My feeling is that the market has much further downside from here in the short term, but nothing goes down in a straight line forever. In this sense a US recession market level is likely to be very close to this level, it may still squeeze the longs yet awhile. 

More generally, I am constructive on how this might impact emerging markets in the sense that inflation is now likely to be even more a non issue. This is especially the case in economies who have mainly been combatting headline inflation (e.g. Chile with India as a rather more sinister case of demand pull inflation too). There will be no recession in EM and therfore a re-rotation into EM from here on as DM slumps into a recession is one way to stay constructive even in the midst of the bloodbath taking place. 


[1] - If I ever write "two many people" you have to tell, nay ridicule, me people. It has been sitting there for a week :) !