MARKET WRAPS
Stocks:
European stocks were pummelled in early action Monday on concerns a Russian attack of Ukraine could happen as early as this week.
The Stoxx Europe 600 dropped 2.5%, led lower by travel and banking sectors.
European airlines trade lower on Monday morning amid fear of a potential invasion of Ukraine by Russian forces.Air France-KLM trades 7.8% lower, while shares at Germany’s Lufthansa fall 6% and IAG–the owner of British Airways–is 7.6% down.Lufthansa said during the weekend it was examining whether it would stop air traffic in Ukraine and Air France-KLM’s Dutch arm, KLM, said on Saturday that “There are now no more KLM flights through Ukrainian airspace until further notice.”
The possibility of a ground war in Europe has loomed large as an additional source of uncertainty for investors in recent weeks.Moscow has denied intending to invade Ukraine, but Russia’s military buildup has quickened, with forces positioned on three sides of the country.They include some of Russia’s best-trained battalions and missiles that could strike targets throughout Ukraine.
The U.S.and its allies are withdrawing diplomatic staff from Kyiv in a sign Western capitals see diplomatic options narrowing.
Companies are also taking precautions.Dutch airline KLM has stopped flying in Ukrainian airspace.Shares of Air-France KLM, the Paris-listed holding company, dropped 6.8%.
Investors say the standoff over Ukraine is difficult to trade because they have no particular insight into the possibility of an invasion and the nature and severity of the West’s response.If Moscow were to attack and the U.S.and its allies responded with sanctions, the hostilities could affect the world economy and markets in unpredictable ways.
One likely consequence, given Russia’s position as a commodities superpower, would be higher energy prices, which could keep up the pressure on central banks to raise interest rates.At least in the short term, stocks and bond yields would likely decline as investors sought safe assets, investors say.
“We have the inflation story and then we have the Russian story,” said Lars Skovgaard Andersen, senior investment strategist at Danske Bank Wealth Management.
In the event of an invasion, “there will be some negative effect on markets, but I also think investors are incorporating this,” he added.
Shares on the move:
Clariant’s decision to delay its 2021 earnings on an investigation into accounting issues will hopefully not destroy the reputation that its new management started to install among investors, Baader Helvea said.
The Swiss chemical company said an investigation triggered by internal whistleblowers is focusing on booking of certain provisions and accruals, with years 2020 and 2021 under review.
Clariant said it may be required to restate previously published financial statements.
However, the underlying business of Clariant seems to have developed better than expected, after the company published preliminary 2021 sales from continuing operations of CHF4.37 billion, Baader said, underpinning the equity-research firm’s positive view of the stock.Nevertheless, shares fall 16%.
Shares in Raiffeisen fall sharply, with the Austrian bank’s exposure to Russia likely weighing on investors’ minds amid fears of an escalation of the situation in Ukraine.Raiffeisen made 33% of its pretax profit in Russia last year, and is by far the most exposed to the country out of European banks.
JPMorgan analysts recently estimated that the other two banks with the highest exposure to Russia, UniCredit and Societe Generale, made about 6% and 4% of their pretax profit in the country last year, respectively.
Raiffeisen shares fell 8.7%, compared with a 4.9% drop for Deutsche Bank and 4.4% fell for Credit Suisse shares, as European bank stocks mirror broader market bearishness over the Russia-Ukraine situation.
Stocks to watch:
EDF’s lower guidance on nuclear output next year was in line with expectations and shouldn’t entail further cuts to earnings, UBS said.
The French energy company at the end of last week lowered its 2023 France output target, following repeated cuts to 2022 guidance.
Lower production this year will hit earnings since EDF sells its output in advance and will therefore have to buy back its hedges, but this isn’t the case for next year’s output, UBS noted.
The new guidance of 300-330 TWh is, moreover, in line with UBS’s existing expectations.”We would be surprised if anyone is surprised,” the Swiss bank says, keeping a buy rating and its EUR12 target price on the stock.
Data in focus:
ECB officials have tried to push back against the shift in market expectations for tighter policy, but inflation data will likely put the bank under pressure in the next six months, Pantheon Macroeconomics said.
Core inflation is expected to climb to 3% by the end of 1Q, where it is set to stay until October, before easing to below 2% going into 2023, Pantheon said.
“The push-back from policy makers lends support to our call that quantitative easing will end in October, and that rates will be raised later than markets expect,” the economic-research firm said, possibly in 1Q 2023.However, risks to this forecast are firmly tilted toward a quicker removal of stimulus, paving the way for a first rate hike in 4Q 2022, it said.
The sizable withdrawal of stimulus this year signaled by the ECB is likely to be more determined by a political objective to end quantitative easing and negative interest rates rather than based on economic forecasts, Erik F.
Nielsen, group chief economics advisor to UniCredit, said in a note.
“Driven by fear among a sizable minority and their apparent threat to open up again a public undermining of ECB policies…Lagarde and the doves are pulling back,” he said.
The withdrawal of stimulus this year could lead to a renewed undershooting of inflation, less growth, and a return to fragmentation as wider spreads cause the private sector in Southern Europe to face tighter conditions than their peers in Northern Europe, he said.
U.S.
Markets:
Bond yields and stock futures fell on the possibility of an imminent war in Europe, after weekend diplomacy between Western leaders and Russian President Vladimir Putin failed to yield a breakthrough.
If the losses continue through the opening bell, they will compound a decline for stocks sparked Friday by U.S.warnings that Moscow could invade Ukraine at any moment.Oil prices edged down, after jumping in early trading on concern a war would curtail supplies of Russian crude to global markets that lack significant spare supplies.
Forex:
The dollar and fellow safe-haven currencies the Japanese yen and Swiss franc rise on growing fears over the risk of a Russia invasion of Ukraine.The DXY dollar index rose 0.2% to a near two-week high, USD/JPY falls 0.2% and EUR/CHF drops 0.2%, according to FactSet.
“Developments in Russia/Ukraine hold the key to this week’s market moves, with a lack of de-escalation further supporting the JPY, CHF and USD,” ING forex strategist Francesco Pesole says in a research note.
The dollar should also be helped by speculation about the Federal Reserve raising interest rates by 50 basis points in March, he said.
The euro looks vulnerable after some European Central Bank officials tried to cool excessive interest rate rise expectations and following warnings that a Russia invasion of Ukraine could be imminent, ING said.
Noting that the EUR/USD fell below the key 1.14 level after the remarks last week, ING forex strategist Francesco Pesole said: “Another break lower–below 1.1300–could generate some further bearish momentum in EUR/USD that could extend to the 1.1200-1.1250 area should markets scale back bets on summer tightening by the ECB.”
EUR/USD fell 0.2% to an 11-day low of 1.1309, according to FactSet.
ECB President Christine Lagarde, ECB economist Philip Lane and ECB officials Francois Villeroy de Galhau and Gabriel Makhlouf have pushed back against the market’s rate rise bets in recent days.
Cryptocurrencies fell early Monday on heightened geopolitical tensions over fears Russia could imminently invade Ukraine.
Bitcoin has fallen 0.65% to $42,085 over the last 24 hours, according to data from Coinbase, below the $47,000 level reached on Jan.1.But it was well ahead of the year-to-date low of $33,000.
The Russian ruble recovered after weakening on renewed worries about the risk of Russia invading Ukraine.USD/RUB fell 1.2% to 76.5030 after hitting a two-week high of 78.1716 overnight, according to FactSet.
The ruble’s outlook depends on the economic impact of potential western sanctions against Russia, Commerzbank currency analyst Tatha Ghose said.
“Whatever sanctions might come will likely drive the ruble exchange rate significantly weaker, which in turn, will attract a draconian tightening cycle from CBR [Central Bank of Russia], doubling the near-term impact on the economy,” he said.
Bonds:
Investors reached for assets they perceive to be havens at times of uncertainty.The yield on benchmark 10-year Treasury notes fell to 1.927% from 1.951% Friday, having reached a two-year high of 2.028% Thursday.
The more than 40 basis point rise in 10-year German Bund yields so far this year is still relatively modest, LBBW’s analysts said.
Although the 10-year Bund yield rose to a three-year high earlier this year, “that puts the benchmark yield just barely at the bottom limit of its trading range from 2017/2018,” they added.
They see this as an ambiguous starting point.”The 10-year Bund yield could easily begin falling back toward the zero line if speculation about a rate hike in the eurozone subsides to some degree.” On the other hand, EUR long-term interest rates are still lagging considerably in terms of adapting to the changing monetary policy environment, they added.
An early policy normalization by the European Central Bank is likely to widen the spread between 10-year Italian and Spanish government bond yields, Morgan Stanley’s rates strategists said.
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02-14-22 0553ET
Stocks mentioned in the article Change Last 1st jan.AIR FRANCE-KLM -4.20% 4.202 13.30% AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.27% 0.63015 -1.57% BITCOIN (BTC/EUR) 1.46% 37742 -8.82% BITCOIN (BTC/USD) 0.95% 42645 -8.90% BRITISH POUND / EURO (GBP/EUR) 0.19% 1.1961 -0.21% BRITISH POUND / US DOLLAR (GBP/USD) -0.32% 1.3525 0.13% CANADIAN DOLLAR / EURO (CAD/EUR) 0.52% 0.695169 -0.65% CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.05% 0.78543 -0.81% CLARIANT AG -16.00% 16.8 5.26% COINBASE GLOBAL, INC.0.37% 195.25 -22.92% COMMERZBANK AG -2.73% 8.573 31.77% CREDIT SUISSE GROUP AG -3.48% 8.312 -2.93% DANSKE BANK A/S -1.36% 131 17.57% DEUTSCHE BANK AG -3.49% 13.896 30.68% DEUTSCHE LUFTHANSA AG -3.25% 7.299 22.07% DOW JONES FXCM DOLLAR INDEX 0.15% 12217.58 0.30% ELECTRICITÉ DE FRANCE -3.17% 8.136 -18.66% EURO / RUSSIAN ROUBLE (EUR/RUB) -1.82% 86.493 2.53% EURO / US DOLLAR (EUR/USD) -0.53% 1.13042 -0.18% INDIAN RUPEE / EURO (INR/EUR) 0.35% 0.011687 -1.24% INDIAN RUPEE / US DOLLAR (INR/USD) -0.45% 0.013217 -1.13% INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A.-5.66% 164.76 22.57% JAPANESE YEN / SWISS FRANC (JPY/CHF) 0.06% 0.7999 1.21% JPMORGAN CHASE & CO.
-0.93% 152.49 -2.80% LONDON BRENT OIL 0.23% 95.62 22.45% NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.51% 0.66093 -2.76% RAIFFEISEN BANK INTERNATIONAL AG -6.00% 26.02 6.96% STOXX EUROPE 600 -1.83% 460.96 -3.74% STOXX EUROPE 600 NR -1.83% 1039.01 -3.67% UBS GROUP AG -2.78% 19.065 19.43% UK PENCE STERLING **** / RUSSIAN ROUBLE (GBP/RUB) -1.88% 1.03156 2.94% US DOLLAR / EURO (USD/EUR) 0.53% 0.884627 0.18% US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -1.39% 76.4937 2.91% WTI 0.44% 94.762 19.34%.
