EUROPEAN EQUITY UPDATE: No love from Russia as geopolitics dominates

Analysis details (10:05)

European bourses are pressured across the board in a continuation of the subdued APAC handover and softer end to the US week though geopolitics are taking centre stage; Euro Stoxx 50 -3.5%. At the cash open, the pressure in Europe was attributed by some to the geopolitical situation around Ukraine as tensions remain high and the US cautions that Russia could invade at any point. Going into the open US futures were fairly contained – but, as sentiment deteriorated further in Europe they too came under pressure and dropped into negative territory, ES -1.1%, but still outperform European peers and are likely looking for Fed updates – more below. Sectors are all in the red as Banks (-4.2%) underperform on yield downside as core-debt rises on risk sentiment, Travel & Leisure (-4.1%) suffers as carriers mull avoiding Ukraine airspace while Oil & Gas (-2.1%) names are more resilient, albeit still red, given benchmark crude prices are underpinned on geopolitics. Elsewhere, Morgan Stanley offers some positive commentary on the European equity space writing that an earnings growth scare is, in the short-term, unlikely; citing “extremely strong” Q4 sales outcomes indicates that aggregate demand/corporate pricing power is very healthy. Separately and turning to the Fed, JPMorgan believes that while equities will drop in the “single-digit” magnitude this should stabilise around three-months after the first hike; thereafter, look for ATHs to print six/twelve-months after lift-off. On the Fed, Monday’s schedule features a Closed Board Meeting at 16:30GMT/11:30EST held under expedited procedures; officially, the meeting appears to be to review and determine the advance and discount rates to be charged by the Federal Reserve Banks, and banks remind us these can be regular meetings and do not include regional Presidents, implying that no monetary policy decisions will be made, but traders are still on alert after some of the inter-meeting hike talk from Fed’s Bullard. Finally, individual movers are generally following the broader risk tone, though Clariant (-19.6%) drops after delaying its results to probe claims of account manipulation and Commerzbank (5.5%) suffers as the German Gov’t defies the Valentines spirit and indicates it will divest its stake in the future.

14 Feb 2022 - 10:05- Fixed IncomeResearch Sheet- Source: Newsquawk