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Tale of the tape: US stocks plunged on rising rates, softer growth data; European shares broadly lower at the open in sympathy but trying to muster around the flatline. The CAC 40 and Eurostoxx 50 up, DAX and FTSE down a touch in the first hour. Tech damage, rising rates etc not the same worry for European equities and indices. Luxury stocks lifted by good results from Burberry. Ashtead and Ferguson down the most on the FTSE 100 on US weakness as the Empire State manufacturing index turned negative for the first time in 20 months. Asian markets were very weak overnight but Europe seems to be trying to halt the bloodletting.


The S&P 500 closed below the low of last week and just about held its 100-day moving average, whilst the Dow closed below that level. The Nasdaq Composite dropped below its 200-day line for the first time since April 2020. The Nasdaq 100 didn’t quite hit last Monday’s lows but futures this morning suggest it will open lower. The wreck in tech is not an orderly rotation right now, particularly with banks being sold off from elevated levels.


Megacap tech took a beating, with MSFT and GOOGL both down 2.5%. ARKK down another 4%, now –20% YTD. Some gains for energy as oil is trading at multi-year highs, lots of damage being done to banks as earnings flag risks. Goldman Sachs dropped almost 7%: expenses +23% vs +8% for revenues…cost cutting now going to go hand-in-hand with core lending growth. Investment banking revenues are lumpy. Scrubbed some 200pts or so off the Dow, which fell more than 540pts for the session. More from the banks today with Bank of America and Morgan Stanley…should be a story of consumer and business lending growth (BAC) and wealth management (MS). Again watch those expenses.


Bonds are making big moves. US 10yr rates touching 1.9%, highest in two years, German 10yr bund yield turns positive for the first time since May 2019, UK 10yr rates highest since March 2019 as data this morning shows inflation at the highest in 30 years. The December CPI reading rose to 5.4%, core CPI rising to 4.2% vs 3.9% expected. The Bank of England surely needs to hike on Feb 3rd. Some respite for the pound this morning as the dollar bounce pauses for breath…not sure if markets can see the BoE hiking leading to sterling strength. We get to hear from governor Andrew Bailey today  as he testifies on the Financial Stability Report at the Treasury Select Committee.


Real rates are key here – US real 30yr almost positive. As for the bund turning positive, it’s a symbolic moment – the bund lives!! This partly reflects thinking the ECB will need to move sooner than it is currently telling us … market pricing 10bps hike by Sep… but also the nature of globally correlated bond markets – the rising tide in the US is lifting all boats. Surveys indicate economists think EZ inflation will ease back to around 2% later this year… good luck with that. FOMC meeting next week – do they bring QE to immediate halt, possibly signal a bold 50bps hike for March to get in front of the market? Rates tend to rise into the Fed’s first hike in a cycle – as previously discussed there is a chance that the Fed lets the market do some of the tightening for it, and hikes less than expected.


BofA’s Jan survey tells us kind of what we knew – investors had cut net overweight positions in tech to lowest since Dec 2008, allocations to banks were at a record high – before earnings landed and positioning seems to have rolled over. Overall the survey noted that investors are still very long equities 


Some analyst comments: Credit Suisse raised its price target on Tesla to $1025 From $830. Deutsche Bank hiked its price target on Apple to $200 per share from $175 on strong iPhone 13 demand as 5G upgrade cycle still in early stages. DB also cut its price target on Netflix ahead of earnings this week to $580 from $590. MSFT buys ATVI…big metaverse play, Microsoft pouncing on a wounded beast and clearly not afraid Washington will walk and walk on anti-trust and big tech bashing. 


NQ futs– cracked last week’s low, trend line broken.

Nasdaq chart 19.01.2022

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