In the past few days, financial markets have been reacting to conflicting information from Ukraine and Russia, increasing volatility. This has been a complicated trading day yesterday on Wall Street, and not just because Elon Musk challenged Vladimir Putin to a man-to-man duel. While the Dow Jones continues to hold its own, the Nasdaq 100 has fallen off the wagon, losing 1.9%. The technology index has officially entered a bear market, meaning that it has lost more than 20% on its recent peaks (precisely, it went from 16,576 points on December 27, 2021 to 13,046 points at the close yesterday, or -21.2%). However, all three indexes are bouncing back this morning, with the Nasdaq up 1.8% as the barrel of Brent and WTI retreated well below $100, easing inflation fears a little bit.

The Nasdaq is not the only place that is currently dysfunctional. I could mention for example the Russian stock market and the nickel market, which for the time being do not work at all. But also the Chinese technology stocks, which are screwing up big time. Or the servicing of the Russian debt, which will be in rubles and no longer in dollars, due to the sanctions. I can also mention socially responsible investment, which everyone talks about, but which systematically takes a back seat to the economic emergency.

And then there is the major dysfunction of the moment, ramping inflation, which will likely destroy the purchasing power of a large part of the country in the weeks to come. The central bank is supposed to deal with the problem, and is due to start raising key rates tomorrow, by 0.25%. The "swaps" linked to the Fed now include seven rate hikes in 2022. Economist Brian Wesbury wrote last night that politicians are trying to blame inflation on all sorts of things. On the left, to corporate greed or Russia. On the right, to government spending or deficits. In the center, to deglobalization. But in reality, it is essentially the result of the expansion of the money supply fed by the central bank. "If the money supply expands too quickly, inflation increases; if the money supply expands too slowly or decreases, there is deflation.  If the central bank does its job well, you get stable prices," Wesbury believes. His attack is of course aimed at the Fed, which has its work cut out for it if it wants to regain control of a situation it has created. But it also applies to other central banks that have chosen to run away from economic problems since the 2008 financial crisis, missing opportunities to normalize their policies when the economic situation allowed it.

On the eve of the Fed's major policy change, the yield on US 10-year debt rose to 2.14%, exceeding its recent peaks. The US VIX nervousness index has risen not far from 32 points.

 

Economic highlights of the day:

The March Empire State Index and February Producer Price Index are the main indicators of the day.

The dollar is trading lower at EUR 0.9100. The ounce of gold is losing ground again at USD 1913. Oil continues to decline, with North Sea Brent crude at USD 98.4 and U.S. WTI light crude at USD 94.32. U.S. debt yields are above their recent highs at 2.14% on the 10-year, while German debt is up more than 10 points since the previous day, with a Bund at 0.36%. Bitcoin is hovering around USD 39,000.

 

On markets:

* Tesla - The U.S. electric vehicle manufacturer raised its prices in China and the United States for the second time in less than a week, a day after its CEO Elon Musk said the group was facing significant inflation in raw materials and logistics.

* After Foxconn on Monday, other Apple suppliers, such as Lens Technology, which specializes in the manufacture of lenses and glasses for displays, said production and delivery of some products would be affected by the temporary closure of factories amid a resurgence of the COVID-19 epidemic in China. Analysts at J.P. Morgan also believe that the suspension of operations in the Chinese city of Shenzen will have a significant impact on iPhone production. Apple shares are down 1% in pre-market trading.

* The Boeing Company - A 737 MAX is scheduled to visit Boeing's eastern Chinese factory in Zhoushan, used for interior trim of the aircraft before delivery, two sources close to the industry said, a sign that the model aircraft, grounded since March 2019 in China, is close to receiving commercial operating approval from Beijing.

* Three US airlines each raised their revenue forecasts for the current quarter on Tuesday on the back of a recovery in travel demand. Delta Air Lines is up 3.2% in pre-market trading, United Airlines Holdings is up 3.7% and Southwest Airlines is up 2.9%.

* The U.S. Federal Trade Commission (FTC) and the European Commission are expected to issue their opinions in mid-March on Amazon's proposed acquisition of Metro Goldwyn Mayer (MGM) movie studios, sources said.

* AMC Entertainment - The movie theater operator will take a 22% stake in mining group Hycroft Mining, which jumps 43.2% in pre-market trading.

* Illumina - The genome sequencing specialist launched a major screening test for rare treatable cancers in Europe on Tuesday, searching for 517 relevant genes in nearly 30 tumor types, which could lead to better management of patients affected by these diseases.

 

Analyst recommendations:

  • Asos: Exane BNP Paribas downgrades from neutral to underperform, targeting GBp 1900.
  • Associated British Foods: Exane BNP Paribas downgrades from Outperform to Neutral with a target of GBp 2050.
  • Coupa Software: Needham adjusts price target to $90 from $210, reiterates buy rating.
  • Currys: Exane BNP Paribas downgrades from neutral to underperform, targeting GBp 85.
  • Dominion Energy: JPMorgan raises price target to $93 from $90, maintains overweight rating.
  • Gitlab: KeyBanc adjusts price target to $50 from $115, reiterates overweight rating.
  • eBay: Deutsche Bank reinstated coverage with a recommendation of buy. PT up 23% to $64.
  • Hormel: Goldman Sachs downgrades to sell from neutral. PT down 12% to $44.
  • Hunting: Jefferies remains Buy with a price target raised from GBp 330 to GBp 380.
  • Lululemon Athletica: Bernstein starts at underperform with $260 price target.
  • Mosaic: Goldman Sachs upgrades to buy from neutral. PT up 43% to $83.
  • Nike: Bernstein starts at outperform with $160 price target.
  • Rentokil: Jefferies remains Buy with a price target reduced from GBp 675 to GBp 650.
  • Ross Stores: Bernstein starts at outperform with $125 price target.
  • Tapestry: Bernstein starts tapestry at outperform with $62 price target.
  • Vail Resorts: KeyBanc Capital Markets lowers PT to $330 from $370. Maintains overweight rating.
  • W.W. Grainger: Atlantic Equities raised its recommendation to overweight from neutral. PT up 20% to $580.