JPMorgan: This Morning We're Seeing the Two Things That Markets Hate the Most

A very gloomy morning.

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Equities tumbling. Gold and silver gaining. Oil plummeting.

"It's hard to imagine an uglier morning," writes JPMorgan's trading desk.

There's nothing hyperbolic about that statement.

At their lows of the morning, S&P 500 futures were down more than 40 points, or 2.3 percent. The EuroStoxx 50 index is doing even worse, down more than 3.5 percent. West Texas Intermediate front-month futures sank to their lowest level since May 2003. Sovereign bond yields everywhere are tumbling—except in Portugal, where they're going bananas. And the yen, a safe haven currency, is the best-performing among the majors.

The selloff in banks has brought with it a renewed sense of panic to the markets, and North America is waking up to more bad news on this front.

"The two things markets hate most right now (neg. central bank rates and bad bank headlines) occurred overnight as the Riksbank dropped its rate further into negative territory and SocGen put up bad earnings/guidance," the traders wrote. "The combination of those two events, coupled with very fragile sentiment, extreme risk aversion (a function of enormous P&L destruction YTD), Yellen’s testimony (which wasn’t sufficiently dovish or concerned about financial market volatility from the perspective of markets), and Cisco's cautious macro commentary, are weighing very hard on equities so far Thursday morning."

To a certain extent, the damage in markets represents an unwind of the interconnected "QE trades" that built up over the years and have fared well since monetary policymakers began emptying their bazookas. As such, the feedback loop in progress makes it nearly impossible to discern when we'll see a light at the end of the tunnel.

"Trying to divine the end of the rout is difficult given the globe is in the midst of a series of tightly intertwined, self-reinforcing, and correlated trades and narratives (i.e. oil slumps and drags inflation down with it which prompts central banks to ratchet up accommodation which sinks banks which crushes general market sentiment and the overall price declines tighten financial market conditions and scares corporate execs and actual economic activity begins to deteriorate)," conclude JPM's traders.

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