BA/ML analysts said in global........>

US TSYS/STOCKS: BA/ML analysts said in global cross asset strategy report that

"low vol and lowflation (low inflation) are, linked but the combination with

earnings is why vol is so low. If it continues, so can low vol."

- They said "low volatility and lowflation are linked as the latter keeps

central banks quiescent. But it is their combination with strong earnings in

2017 that has led investors to buy dips and keep realised vol so low. It is

this, rather than selling of vol, that has dragged implied vol lower. The longer

it continues the more the current low vol regime echoes 2004-07."

- They said "while low vol can continue, the run of no 5%+ (US equity) pullbacks

has to end at some point, and we see evidence of rising risks. Michael

Hartnett's Bull Bear indicator is close to a sell signal (7.6 vs 8 threshold),

and the potential for a debt ceiling standoff in September could be another

catalyst. Investors should use the low level of vol to protect portfolios."

- They rolled "our Nasdaq put spreads to October" and add "VIX Oct. collared

call (sell 12 strike put to buy 14-19 call spd). We continue to run our relative

variance spreads in Estoxx, NKY and RTY vs SPX as our longer dated protection."