EUROPEAN EQUITIES UPDATE: Stocks slip early-week on geopolitics and with the clock ticking down to ECB

Analysis details (10:20)

Sentiment remains sullied by geopolitical concerns following unconstructive developments on the Russia-Ukrainian front over the weekend – including ceasefire breaches and the West upping the ante with talks of Russian oil import bans. The downbeat mood reverberated from APAC to Europe while US futures are also pressured but to a lesser extent, with the RTY (-2.0%) narrowly underperforming the NQ (-1.8%), YM (-1.5%) and ES (-1.5%) with traders setting sights on US CPI this week ahead of next week’s FOMC. Back to Europe, the ECB on Thursday will have to manoeuvre through stubborn (and rising) inflation expectations coupled with the EZ GDP hit expected from the war - Goldman Sachs estimates that a sustained USD 20/bbl increase in oil prices would reduce US GDP by 0.3% and Euro-area by 0.6%. Equities have taken a broader hit this morning with the Euro Stoxx 50 cash opening some 20% below its November peak (Euro Stoxx 50 -3.5%; Stoxx 600 -3.1%) – with the DAX 40 (-3.9%), CAC 40 (-3.6%), IBEX (-3.6%) and FTSE MIB (-3.6%) seeing relatively broad-based downside, whilst losses in the FTSE 100 (-1.8%) is cushioned by substantial gains across its heavyweight commodity names. USB Global Wealth Management cut EZ stocks to neutral on the extent of future Russian sanctions, military developments, commodity prices outcomes, global growth impact and central-bank policy shifts/divergences. Similarly, strategists at JPM suggest EZ equities are unlikely to performance as long as the Russia-Ukraine conflict holds the narrative. The bank cut its Stoxx 600 year-end forecast to 500 (prev. 520) – but remains overweight EZ equities as valuations are close to a record discount vs the US. As mentioned above, this week and next week will see policy decision from the ECB (10th), FOMC (16th), BoE (17th) and BoJ (18th). Nomura argues that due to the lower trade link, the Fed would be least affected by Russia/Ukraine in policy discussions. The ECB will likely be the most cautious, followed by the BoE. Delving deeper into today’s trade, sectors are mostly lower with the clear exception of Oil & Gas and Basic Resources as Russia-related commodities soar. To the downside, Banks lag in which the Stoxx Europe Banking Index posted its deepest losses since the COVID shock of March 2020. Retail also resides at the foot of the index as a myriad of firms shut their stores in Russia – including Kering (-4.1%) and LVMH (-3.3%). Airliners are also impacted by the oil shock, with Air France (-8.0%) among the worst hit at the open.

07 Mar 2022 - 10:20- Fixed IncomeData- Source: Newsquawk