"Growth expectations keep declining, risk free rates are rallying and risk premium is rising." That's how Nomura strategists Kevin Gaynor and Sam Bonney summarize their dismal outlook for both the global economy and capital markets in their latest (and last for 2018) Global Markets Monitor, titled "Return regime: still bearish" in which in addition to a global growth slowdown and rising rates, a poor macro backdrop and market technicals, the duo also reference the ongoing tightening by the Fed and other CBs, and highlight that the global feedback loop between the i) output gap, ii) central banker reaction functions, iii) technicals and iv) leverage is pointing in one direction: down. This is how Nomura's strategists summarize the above graphic: We continue to believe that in the main the linkage between a higher market cost of capital and economic growth will prove to be primarily via the confidence channel rather than the credit channel in the G4. Sub-trend growth, slower labour markets and lower inflation expectations and a higher cost of capital need not mean a full-blown economic recession and we are not yet forecasting that scenario; however, it may be the case that the market reaction is outsized versus the economic reaction. This is the key area for us in research terms now. So until new signals emerge that could potentially solidify a "recession" forecast, Nomura notes that in the DM space US data is showing signs of moderation from its lofty levels with continued weakness showing in the housing market and slipping December sentiment indicators. This is important because US data slowing toward trend would be enough to send advanced economies into the “slowdown” phase. At the same time, there is no help from the world's second largest economy as European data continues to suffer from the impacts of populist politics and slowing global momentum, whilst rising unit labor costs keep pressure on profit margins. Which brings us to the one topic we believe together with the Chinese credit impulse, explains everything one needs to know - and forecast - about the global economy and markets: central bank liquidity, and its tightening. The good news here is that the perceived change in the Fed’s reaction function courtesy of Powell's most recent speech, has reduced the likelihood of tighter interest rate policy, particularly in a slowing growth scenario that might prove to be a cushion to the most negative of growth tail risks. However, this will hardly be enough to rekindle animal spirits as QT has now started across the G4 and as the Japanese banks points out somewhat controversially, "central banks, rightly so, are unlikely to flip policy on the basis of market growth expectation changes." Furthermore, while it is likely the market will, based on our most likely macro scenario, price in a modest Fed rate cut, G4 monetary policy is a long way from moving toward a committed easing stance given the current unemployment level. In this context, a “put” implies the policy makers are seeking to make investors “money good” – however, this put is still too expensive to trust, in Nomura's view. Nevertheless, a data-dependent Fed is welcome and if expectation for an economic slowdown are confirmed, the data will validate the Fed standing pat, which is now largely priced certainly in the fixed income market where fed funds now expect less than one rate hike for all over 2019 and rate cuts in 2020. Hence, while Nomura shift toward a “same” monetary policy stance with increased risk of loosening being priced in, it issues one substantial warning: central banks are almost out of ammo, to wit: A key theme we have been highlighting is the lack of policy maker ammunition globally to deal with a left-hand growth outcome (both from governments and central banks). In justifying its rising pessimism, Nomura believes that China is unlikely to bail out global growth expectations with an all-out stimulus, as "the traditional levers are not compatible with its deleveraging program" and markets are increasingly adjusting to this reality by selling off at an accelerating pace. Finally, in what may be the worst news for bulls, the Nomura duo predicts that "later this week the Fed is unlikely to offer the “put” markets have been looking for." If so, and if Powell refuses to concede to demands to "make investors whole", watch out below.