EUROPEAN EQUITY UPDATE: EZ outpaces peers on constructive Russia/Ukraine noise ahead of ECB tomorrow

Analysis details (10:28)

Equities in Europe are posting substantial gains across the board thus far (Euro Stoxx 50 +5.0%; Stoxx 500 +3.2%) – with Euro-bourses outpacing non-Euro peers and US equity futures with several factors at play. US equity futures took their cues from European counterparts and trade firmer across the board, with the NQ (+2.0%) narrowly outperforming the ES (+1.6%), YM (+1.4%) and RTY (+1.1%). From a geopolitical standpoint, humanitarian corridors have been opened with no breaches reported yet, whilst the Russian and Ukrainian Foreign Ministers are still poised to meet tomorrow. Further, the Foreign Ministry spokesperson said operations in Ukraine do not include overthrowing the government. Reports via AFP (citing Russia) suggested: "some progress" has been made in discussions with Ukraine. However, it is worth being aware of Fox News reports that the city of Kyiv could see the Russian military within the next 48-72 hours. Adding to the equity tailwinds, the ECB tomorrow will likely adopt a more cautious tone vs February amid the fallout of Russia’s invasion of Ukraine - some desks have suggested that talk of a 2022 hike by the Bank will likely be put to one side for now. However, policymakers will likely convey that the direction of travel for monetary policy is one of normalisation, albeit any policy guidance from the ECB will likely be heavily caveated and subject to great uncertainty (full preview available in the Newsquawk Research Suite). In terms of commentary, strategists at Morgan Stanley believe markets could increasingly price in the risk of recession given the rising commodity prices pressuring consumers and corporates, “we find that a stagflationary backdrop tends to favour commodity and defensive-oriented stocks at the expense of cyclical and financial companies - a trend that has repeated itself over the last month here in Europe.”, MS says, “an alternative strategy is to focus on companies that have strong pricing power, as they should have more ability to raise prices to offset higher input costs than other stocks.” MS goes on to highlight that sectors that are currently upping their prices include “airlines, brands, hotels, metals and mining companies, telecoms and tobacco”. Nonetheless, the DAX 40 (+5.2%) outpaces its peers as Adidas (+9.3%) soars as its guidance topped expectations, whilst Autos also staged a recovery. Delving deeper into European, Banks are the clear outperformers as yields surge. Interestingly, Tech is the second-best performer thus far despite the yield backdrop. Overall sectors do not portray a particular theme, but Energy and Basic resources sit at the foot of the table following the sectoral outperformance seen earlier in the week. Individual movers today are largely macro-related: Russia-linked Polymetal (+45%) and Evraz (+19%) are once again at the top of the FTSE 100 with the former stating all operations in Russia and Kazakhstan continue undisrupted. Similarly, Russia-exposed Raiffeisen Bank (+17%) is firmer in what is seemingly a rebound of Russian stocks. On the other side of the spectrum, “war-havens” lag with Defence names, miners and oil names all posting losses.

09 Mar 2022 - 10:28- EquitiesResearch Sheet- Source: Newsquawk