..see mounting evidence that global markets are in the last stage of their rallies..

HSBC Holdings Plc, Citigroup Inc. and Morgan Stanley see mounting evidence that global markets are in the last stage of their rallies before a downturn in the business cycle.

Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.

“Equities have become less correlated with FX, FX has become less correlated with rates, and everything has become less sensitive to oil,” Andrew Sheets, Morgan Stanley’s chief cross-asset strategist, wrote in a note published Tuesday.

https://www.bloomberg.com/news/articles/2017-08-22/wall-street-banks-warn-winter-is-coming-as-business-cycle-peaks

Bank of Tokyo-Mitsubishi UFJ formally quit its role as a primary dealer of Japanese government bonds this July 15

TOKYO -- Bank of Tokyo-Mitsubishi UFJ formally quit its role as a primary dealer of Japanese government bonds this July 15, a move that  reflects the lender's heightened sense of risk over a possible crash in the JGB market.
The Mitsubishi UFJ Financial Group unit ran simulations gauging how fluctuating yields would affect its capital base. The results were not pretty.

The number crunchers found that the capital adequacy ratio would decline by roughly five percentage points if JGB yields increase by 200 basis points across the board. Yields move inversely to bond value. The numbers may be somewhat exaggerated since the estimate was done using earnings figures for fiscal 2012, near the peak of the bank's JGB holding. That said, the lender would have seen its capital ratio cut by a third.
For a long time, Japanese banks regarded JGBs as essentially zero-risk assets when computing capital ratios. Once saddled with mountains of bad loans, the lenders had shied away from smaller businesses -- risky borrowers -- and instead flocked to JGBs, which promised quick profits, and developed a dependency on those instruments.
Nowadays, the safe-haven myth surrounding JGBs is starting to look shaky. When JGBs were generating yields on the plus side, investors suffered no loss if they held on to the bonds to maturity. But now, under the Bank of Japan's negative interest rate policy, JGBs have transformed into loss-laden assets.

Full article at:
http://asia.nikkei.com/Markets/Capital-Markets/Banks-raising-guard-against-possible-JGB-crash?page=1

BIS Highlights Trouble Spots for Global Economy

FRANKFURT—A mix of weaker growth in China, the U.S. dollar's rise in value and high levels of dollar-denominated corporate borrowing pose a risk to emerging markets, the Bank for International Settlements warned in a report issued Sunday that highlighted many trouble spots for the global economy.

"China's economic slowdown and the U.S. dollar's appreciation have confronted [emerging-market economies] with a double challenge: growth prospects have weakened, especially for commodity exporters, and the burden of dollar- denominated debt has risen in local currency terms," the Switzerland-based consortium of central banks said in its quarterly report.

"We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines," said BIS chief economist Claudio Borio.

Financial markets have swung wildly in recent weeks, due in part to a decision by China last month to devalue its currency. This raised fears that the world's second-largest economy had lost momentum, threatening an already tepid global economic recovery. Uncertainty over the timing of future interest-rate increases by the U.S. Federal Reserve has added to the volatility in markets.


Read more: http://www.nasdaq.com/article/bis-highlights-trouble-spots-for-global-economy-20150913-00010#ixzz3lkvvJ5MM