Two events are making headlines today, in slightly different registers. In New York, a former US president will probably be indicted for paying bribes in exchange for the silence of a former porn actress. The press emphasizes that this incident in Donald Trump's life should not affect his possible candidacy for the highest office next year, since the constitution does not require presidential candidates to have a clean record. In Zurich, Credit Suisse is holding what is likely to be its last general meeting before it is absorbed by UBS, in a bailout deal decided in Bern to avoid a systemic shock to Switzerland and the global banking system.

Yesterday, the recent fine enthusiasm of investors was put on hold. OPEC+, the 19-nation oil cartel, has flexed its muscles by announcing a significant production cut. The total cut will be 1.66 million barrels per day in May, mostly from Russia and Saudi Arabia (500 million barrels each). Iraq, the United Arab Emirates and Kuwait are also among the big "contributors" to this reduction. The price of a barrel has logically taken the upward slope. The effect has been maximized by several elements. First, a little old-fashioned perfidy, since the cartel members who had been interviewed before the weekend had all suggested that nothing would happen at the meeting. Secondly, the announcement coincides with the start of the high season for oil consumption with the recovery of tourism and harvests. Finally, the US strategic reserves have been low since the Biden administration dipped into them to mitigate the impact of the energy crisis. Overall, this is a demonstration of the cartel's power.

The reaction of investors yesterday was fairly predictable. They started by rushing to oil stocks and abandoned their beloved tech stocks for a bit. There was a big gap between the Nasdaq 100 and the Dow Jones. The old index was boosted by its oil company, Chevron, and its biggest weighting, UnitedHealth, which benefited from a more favorable measure than expected in the framework of the Medicare program. The Dow Jones recovered 1% while the Nasdaq 100 fell 0.25%.

Investors were also (somewhat) alarmed about the impact of the oil rebound on inflation: after all, their basic bet is that a more favorable monetary policy will arrive in the near term. Moreover, bond yields have risen a little. But the release of two particularly weak manufacturing production indicators turned sentiment around again. Bad macro news is good news for investors right now, as it reinforces the assumption that the central bank will eventually be forced to cut rates to avoid a sharp economic slowdown.

By the way, James Bullard of the Fed will soon become a martyr if he ends up being right. He warned investors again yesterday that he believes they are too optimistic about the path of rates. He thinks markets should listen to him on rates, he essentially said on Bloomberg.

So this morning, it’s a bit of a mixed mood due to the aftermath of the OPEC+ decision, but there’s no fundamental change at this point in the dominant narrative driving the markets. As I write, US futures and most global indices are bullish.

 

Economic highlights of the day:

The European Producer Price Index for February, US February Durable Goods Orders and the JOLTS survey are planned today. All the agenda is here. This morning, the Australian central bank left rates unchanged, as expected.

The dollar is flat against the euro at 0.9177 and down 0.4% against the pound at GBP 0.8017. The ounce of gold is up to 1980 dollars. Oil is holding its gains, with North Sea Brent at USD 85.55 a barrel and U.S. light crude WTI at USD 81.05. The yield on 10-year US debt falls to 3.43%. Bitcoin is trading around USD 28330.

 

In corporate news:

  • Virgin Orbit - British businessman Richard Branson's satellite launch company filed for Chapter 11 bankruptcy protection Tuesday. 
  • Walmart will cut more than 2,000 jobs at five U.S. e-commerce warehouses, Bloomberg reported.
  • Apple will cut a small number of positions in its retail teams, Bloomberg also reported.
  • Tesla sold 88,869 electric vehicles manufactured in China in March, up 35 percent from a year earlier, data released by the China Passenger Car Association (CPCA) showed Tuesday.
  • AMC Entertainment is down 27.8% in pre-market trading after the movie theater chain said it has agreed to settle a lawsuit and convert its preferred shares to common stock.
  • KKR & Co. said Tuesday it closed its sixth and largest European private equity fund at $8 billion to target investments in Western Europe, a significant boost for the company amid high market volatility and declining interest in large acquisitions.
  • Merck - A Delaware judge on Monday dismissed Merck's lawsuit seeking to magnify the German group's liabilities stemming from its 2014 purchase of Merck's consumer products business, following consumer lawsuits over the sale of talcum powder accused of causing cancer.
  • Micron said Monday that its business operations in China were normal and that it was cooperating with the Chinese government in a review by China's cyberspace regulator of the group's products.
  • ConocoPhillips - A federal judge on Monday rejected a request by environmentalists to temporarily suspend the U.S. government's approval of the Texas-based company's controversial oil drilling project in northern Alaska.
  • Lockheed Martin - The U.S. defense group and Britain's BAE Systems have won a contract to support the maintenance of F-35 military aircraft worth 161 million pounds ($200 million), the British Ministry of Defense said Tuesday.
  • JPMorgan - The U.S. Virgin Islands wants to expand its lawsuit accusing the U.S. bank of aiding deceased financier Jeffrey Epstein in his sex trafficking of girls and young women, adding a new charge of obstruction and an allegation that bank executives joked about the former financier.

 

Analyst recommendations:

  • AssetCo: Numis resumes coverage with a Buy rating of GBp 77.
  • Chevron: BNP Paribas upgrades to neutral from underperform. PT up 18% to $200.
  • Comcast: KeyBanc Capital Markets upgrades to overweight from sector weight. PT up 16% to $44.
  • Corebridge Financial: Goldman Sachs upgrades to buy from neutral. PT up 48% to $23.
  • Haleon: Bernstein starts tracking at Outperform, targeting GBp 380.
  • Idacorp: Mizuho Securities downgrades to neutral from buy. PT down 1% to $107.
  • Norfolk Southern: Wolfe Research upgrades to outperform from peerperform. PT up 20% to $251.
  • Oneok: Citi upgrades to buy from neutral. PT up 11% to $72.
  • Pennon: Morgan Stanley downgrades from overweight to Equal weight, targeting GBp 940.
  • Petrofac: Jefferies downgrades from buy to hold, targeting GBp 70.
  • PG&E: Ladenburg Thalmann & Co initiated coverage with a recommendation of buy. PT set to $20.50.
  • Prudential Financial: J.P. Morgan upgrades to overweight from neutral. PT up 38% to $114.
  • Renishaw: Jefferies starts tracking at underperform targeting GBp 3270.
  • Sarepta: Citi initiated coverage with a recommendation of buy. PT set to $179.
  • Schroders: Numis resumes tracking to lighten, targeting GBp 410.
  • ServiceNow: Baird upgrades to outperform from neutral. PT up 18% to $548.
  • United Bankshares: Stephens Inc initiated coverage with a recommendation of equal-weight. PT set to $32.
  • WesBanco: Stephens Inc initiated coverage with a recommendation of equal-weight. PT set to $28.