Last week at the World Economic Forum in Davos, economist Nouriel Roubini told BI's Joe Weisenthal that it seemed markets had sailed into a "mini-perfect storm," resulting in lots of volatility.

"...Between Chinese PMI of 50, Argentina letting its currency go, noises coming politically from Ukraine, Turkey, and Thailand … [the] contagion is not just within emerging markets but also affects advanced economies' equity markets."



On Sunday, the economists at Société Générale issued a similar warning using the same vivid imagery.

In a note to clients titled "Perfect Storm Brewing As Policy Turns," they write:

Following a week of extreme volatility in emerging markets, many wonder if we are now heading for a perfect storm, with China increasingly sucked in and Europe's already low inflation falling further towards deflation. The current developments also mark a shift in markets' focus on where the need for policy change is the greatest - away from Europe where bond spreads remain resilient. We remain unconvinced, however, that the reforms to date in Europe are enough to raise growth sufficiently and put public debt trajectories on a sustainable path.

This is also implicit in recent papers discussing how to deal with bailouts and debt restructuring in Europe (see for instance the Bundesbank). Notwithstanding the current signs of a genuine cyclical upturn in Europe, we fear that the lack of growth-enhancing reform will soon again show up in disappointing nominal growth. For the week ahead we expect continued market nervousness, with China having set the mood early in the week, while European and US data later in the week should provide some stability.

We'll be following whether things calm down at all as thousands of companies around the world reveal the state of the global economy.

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