Wall Street indexes just put a fourth straight red bead on their loss necklace, so much so that the Nasdaq 100 ended the session at its lowest level since late September 2020.

Small fires tend to multiply around the main inflationary-geopolitical-monetary inferno. A blaze that central bankers are trying their best to contain. For example, the stricter export rules for high-tech equipment from the United States to China has brought despair to the very semiconductor sector, which is moving from haven status to expiatory victim of de-globalization (Nvidia -60% for the year but still generously valued. I remind you that to compensate a -60%, you need a +150%). Hence a new bout of weakness yesterday for the US technology index, and a new low since March 2020 at the close for Cathie Wood's ARK Innovation fund, which personifies the ultra-aggressive investing that worked so well during the super-cycle that started in 2009.

In another place, another disaster, the UK bond market flared up again yesterday, despite the Bank of England's efforts to contain it. The yield on 10-year Gilts reached 4.46%, barely less than Italian debt (4.62%). This crisis within a crisis is described by the former governor of the Indian central bank, Raghuram Rajan, as a consequence of the overabundance of free money, which has turned pension funds into hedge funds. In theory rather wise, probably even boring for some investors who seek the adrenaline of volatility, pension funds have ended up adopting so-called liability-driven strategies. Rajan explains that in order to compensate for the low yields of long-term Gilts (caused by quantitative easing policies), these funds have increased the risk profile of their other assets by using higher leverage, but hedging their interest risk with derivatives. In the current market configuration, the cost of this protection has exploded, leading to huge margin calls that have required the sale of some assets, which had no buyers, so the Bank of England has had to intervene. Financial crises have many causes, but the original sin is invariable: greed.

Finally, I think we have to salute the Scandinavian humor after Ben Bernanke co-won the Nobel Prize in Economics. He chaired the Fed from 2006 to 2014. The Swedish Academy chose to reward him, along with two of his compatriots, for his work on financial crises. This is a bold choice when you consider that he was at the helm before the 2008 crisis broke out and that he is the father of the quantitative easing policy. This monetary interventionism is considered by some to be essential to preserve financial stability, while others see it as the source of many of the current ills.

US leading indicators are not really showing any signs of recovery this morning. There is a clear sense that investors are in the process of capitulation. The real question now is who will capitulate first, the equity and bond holders or the central banks. The answer is not as obvious as it seems, but I put a small piece on the monetary authorities. Whether it is for better or worse remains to be seen.

 

Economic highlights of the day:

There will be no major macroeconomic indicators today.

The dollar is down slightly against the euro and the pound to EUR 1.0280 and GBP 0.9010 . Gold is back up to USD 1669. Oil is down, with North Sea Brent at USD 94.79 a barrel and US WTI light crude at USD 89.60. The yield on 10-year US debt is back up to the 4% mark. Bitcoin is falling back to around USD 19,000 per unit.

 

In corporate news:

* American Airlines raised its quarterly sales on Tuesday, expected to rise by about 13%. The company was up 2.7% in premarket trading.

* Eli Lilly - U.S. Food and Drug Administration inspectors recently found several new quality control problems at an Eli Lilly plant, which is already under federal investigation for manufacturing defects, a government document seen by Reuters shows.

* Zscaler was down 3.6% in pre-market trading after announcing the resignation of its chairman, Amit Sinha.

 

Analyst recommendations:

  • Analog devices: Cowen initiated coverage with a recommendation of outperform. PT set to $180.
  • Bruker: Nephron Research upgrades to buy from hold. PT up 34% to $72.
  • Centrica: Citigroup upgrades from neutral to buy targeting GBp 81.
  • Coca-Cola: Wedbush initiated coverage with a recommendation of outperform. PT set to $63.
  • Constellation Brands: Wedbush initiated coverage with a recommendation of outperform. PT set to $275.
  • Corebridge Financial: Citi initiated coverage with a recommendation of neutral. PT set to $23.
  • Ferrari: Mediobanca raised its recommendation to outperform from neutral. PT rises 24% to $225.41.
  • Kingfisher: Numis moves from light to sell targeting GBp 150.
  • Meta Platforms: Atlantic Equities downgrades to neutral from overweight. PT rises 20% to $160.
  • Next: Numis moves from accumulate to buy targeting GBp 6800.
  • Northrop Grumman: Wolfe Research initiated coverage with a recommendation of outperform. PT set to $565.
  • Skyworks: Wells Fargo Securities downgrades to equal-weight from overweight. PT up 13% to $95.
  • Texas Instruments: Cowen reinstated coverage with a recommendation of market perform. PT up 8.4% from last price to $170.
  • The Boeing Company: Wolfe Research initiated coverage with a recommendation of outperform. PT set to $180.
  • Warner Music: Goldman Sachs reinstated coverage with a recommendation of buy. PT up 43% from last price to $32.
  • Woodward: Wolfe Research initiated coverage with a recommendation of outperform.