EUROPEAN EQUITY UPDATE: Sentiment sullied as geopol stays in focus ahead of scheduled risk events

Analysis details (10:12)

Market sentiment has shifted towards risk aversion following an indecisive European cash open - which saw the overnight optimism dissipate. The deterioration in sentiment is seemingly a function of geopolitics judging by the broader market moves at the time (equities down, oil up, havens up), with yesterday’s negotiations between Ukrainian and Russian officials at the Belarusian border failing to achieve meaningful results. US equity futures have given up overnight gains and have dipped under their APAC ranges; with the NQ (-1.0%) the laggard vs the ES (-0.7%), YM (-0.6%) and RTY (-0.7%), as the US looks ahead to a myriad of risk events today (barring headlines) in the form of ISM PMIs, Fed Hawks, and US President Biden’s State of the Union address. Back to trade, Europe is firmly in the red and extending on losses in recent trade (Euro Stoxx 50 -2.9%; Stoxx -1.8%) as less constructive Russia-Ukraine headlines hit the wires – whilst a leg lower in prices coincided with commentary from the Russian Defense Minister who suggested Russia will continue operations in Ukraine until it achieves its goals, according to Interfax. Euro-bourses are pressured to a greater extent than the FTSE 100 (-1.0%) which is being propped up by the outperforming Basic Resources sector as Russia-related commodities remain bid as tensions remain heightened. Sectors overall are mostly lower (ex-Basic Resources) and with defensive faring better than peers. Banks briefly popped to the top of the bunch at the cash open following yesterday’s SWIFT-induced declines. Defence names are once again topping the charts with the geopolitical situation underpinning Rheinmetall (+7.6%) and Thales (+5.4%). Conversely, Russia-exposed stocks Nokian (-10%) and Polymetal (-20%) sit as the laggards. In terms of market commentary from Citi, the analysts suggested that, according to their tracking, investors are increasingly net short across most markets: “US futures positioning is extended and one-sided short for Nasdaq 100, and increasingly bearish for S&P 500. In Europe, while investors are extended net short, losses are rising against those holding long futures positions, in particular within EuroStoxx and European Banks, where the size of longs are above historical averages, which is leading to increased downside pressure.”, the bank said. In terms of European stocks, JPM believes investors are facing a dilemma on “whether to stick with the Value call and continue to chase Financials and Energy stocks in the hope the cycle strengthens further, or to take profits on Value and rotate more aggressively towards Growth and Quality”. The bank highlights that its Quant Macro Index (QMI) remains in a downtrend, and at this stage, believes further weakness is likely.

01 Mar 2022 - 10:12- EquitiesEconomic Commentary- Source: Newsquawk