BofA’s ‘Critical Stress Signal’ Was Just Triggered: “This Is Where Central Banks Step In”
by Tyler Durden
ZeroHedge.com
Sat, 02/10/2018
The last two hours of trading on Friday aside, when a violent short squeeze coupled with unsubstantiated speculation by JPMorgan that the quant deleveraging and selling is finally over send the Dow Jones soaring over 600 points in under an hour, the stock market remains especially volatile and vulnerable to even the smallest shifts in sentiment.
Meanwhile, as Bank of America’s derivatives team writes, the bank’s proprietary Critical Stress Signal (CSS) was triggered to “Risk-off” on 8-Feb-18, with 13 components rising by more than 0.5 standard deviations in a 10-day period.
Looking at the internals of the index, it’s a familiar story: there was an eruption in equity vol which promptly cascaded across stock markets, while keeping other asset classes relatively insulated. However, as we showed over the past two days, there have been distinct instances of contagion from stocks to credit, rates, FX and even commodities, and as equity vol is sliding, X-asset vol continues to rise.
From BofA’s perspective, equity skew, or the price of equity tail protection, and the shock to US equity vol this week, were the real stress outliers…
The Rest…HERE
