Adding to concerns today was Credit Suisse, whose shares plunged to fresh lows after its CDS spreads rose sharply on Friday. The Swiss bank issued a memo to its employees, which leaked and agitated social networks on Saturday and Sunday. The bank had to reach out to clients and investors to clarify its short-term strategy.

However, there was a bit of good news from the U.K. The pound rose after the Truss government changed course and said it would not scrap the higher rate of income tax, a controversial measure that had sent markets into turmoil last week and pushed the FTSE 100 down by 1.8%.

It reached its highest in 10 days against the dollar, at $1.128. The 10-year gilt yield fell 0.07 percentage points to 4.02 %. But overall, gilts are still high, a sign that the government needs to do more to regain the confidence of investors.

Over the weekend, Standard & Poor's cut the outlook on its AA rating for British sovereign debt from "stable" to "negative", saying Liz Truss' tax-cutting plans would lead to a continued rise in debt.

Oil prices are up ahead of the OPEC+ meeting later this week, since many reports indicate that the cartel could be considering a one million barrel a day production cut.

All in all, it seems that the last quarter of 2022 comes at a difficult period for stock markets, after a month of September that dashed investors' hopes of a rebound. Risk aversion is still high, which has sent the stocks once cherished by the market to the bottom.

Geometry lovers will surely have noticed some symmetry in equity markets in Q3 2022. Equity indices climbed until mid-August, only to reverse course and finish (much) lower than they started the quarter. In the end, the balance sheet looks something like this: The S&P500 lost -9.3% in September, -5.3% for the entire 3rd quarter and -25% for the year, while the Nasdaq 100 lost -10.5% in September, -4.6% for the quarter and -33% for the year.

It looks like investors have largely underestimated the risks facing the global economy. The situation has probably been exacerbated by the widespread complacency inherited from the crazy stock market years that followed the 2008 financial crisis. Add to this globalization, geopolitics, central banks, energy transition, excessive financialization, dogmatism, pandemic, inequality, fiscal stimulus, and tribalism... etc., and you get today's quagmire.

In addition, the traditional safe havens have disappeared. The bond market is in great difficulty: government bonds are at -21.6% since the beginning of the year. High yield bonds are at -18.9% and investment grade corporate bonds are at -21.2%. This is barely better than the S&P500 for example. To find something positive in 2022, you have to go to commodities (+28% this year), the US dollar (+18%) or oil (+9%). The stocks that have benefited the most are oil (energy supply crisis), arms (return of military risk), banks (rate hike cycle) and healthcare (defensive sector in times of crisis). So, as Q4 starts, let's prepare for the worse, but hope for the best.

 

Economic highlights of the day:

The second reading of the September manufacturing PMI indices for the major economies is expected today, as well as the ISM Manufacturing in the US. All the macro agenda here. 

The dollar is trading at EUR 1.0242 and GBP 0.8912. The ounce of gold is back up to USD 1667. Oil rebounded, with North Sea Brent crude at USD 88.74 per barrel and U.S. light crude WTI at USD 83.40. The yield on 10-year US debt is little changed at 3.78%. Bitcoin is hovering around USD 19,200.

 

In corporate news:

* The Boeing Company has announced a commitment of $2 million to support people on the ground affected by Hurricane Ian in Florida.

* Tesla announced that it produced more than 365,000 vehicles and delivered more than 343,000 in the third quarter, which is below expectations.

*Credit Suisse tries to ease investor concerns after spreads on Credit Default Swap rose.

*RWE bought Con Edison's renewable portfolio for $6.8 billion.

*Prosus gives up on buying Billdesk.

*Sony will launch a Playstation dedicated to virtual reality.

*ABB lists Accelleron (turbocharger subsidiary) today in Zurich.

*EU antitrust regulators set November 8 deadline for decision on Microsoft and Activision.

*Intel subsidiary Mobileye files for a public listing.

 

Analyst recommendations:

  • British American Tobacco: Jefferies remains Buy with a price target raised from GBp 4500 to GBp 4800.
  • CF Industries: RBC Capital Markets upgrades to outperform from sector perform. PT  up 40% to $135.
  • Citigroup: Goldman Sachs downgrades to neutral from buy. PT up 30% to $54.
  • EasyJet: HSBC downgrades from buy to hold, targeting GBp 300.
  • International Consolidated Airlines: HSBC upgrades from hold to buy, targeting GBp 130.
  • Intuit: J.P. Morgan moved its recommendation to neutral from rating suspended. PT down 7.1% to $360.
  • Land Securities: Stifel downgrades from buy to hold, targeting GBp 550.
  • Sage: UBS  increased its price target to 7.45 pounds sterling from 7.20 pounds and reiterated its neutral rating.
  • Shaftesbury: Stifel downgrades from buy to hold targeting GBp 380.
  • Wells Fargo: Goldman Sachs upgrades to buy from neutral, adjusts price target to $48 from $46.