EUROPEAN EQUITY UPDATE: Stocks fade earlier gains after Lavrov slams the West ahead of the EC/NATO summit

Analysis details (09:49)

Equities in Europe have given up earlier gains after what was initially a tentative start to the mid-week session. To recap, APAC sentiment lifted Western equity futures overnight but gains trimmed heading into the European open, whilst punchy rhetoric from the Russian Foreign Minister sullied sentiment ahead of the European Council/NATO summit tomorrow. Equity futures drifted lower as Lavrov suggested NATO is still expanding eastward and suggested that Ukraine’s EU membership threatens Russia’s interests. As a reminder, Ukraine abandoned its bid to join NATO but its application for joining the EU has been accelerated. It’s also worth being aware of some potential profit-taking following the recent run across stocks against the backdrop of hawkish central banks and little progress in Russia-Ukraine negotiations. Back to trade, US equity futures are choppy with a mild downward tilt at the time of writing with the ES (-0.3%), NQ (-0.3%), RTY (-0.2%) and YM (-0.2%) seeing a broad-based performance ahead of scheduled appearances from Chair Powell, Fed’s Daly, and Bullard - although they have all given hawkish remarks earlier in the week. For reference, the ES M2 200 DMA today resides at 4,450. In terms of European trade, bourses held a mild upside bias for the first hour of trade before individual regions started dipping into the red (euro Stoxx 50 -0.5%; Stoxx 600 -0.2%), with the Austrian ATX (-0.9%) the standout laggard (potentially on its exposure to Russia) whilst the FTSE 100 (+0.2%) holds firm as Sterling loses ground and ahead of the UK Spring Statement from Chancellor Sunak – in which defence spending and energy price mitigations will likely take focus from a stocks perspective. Sectors in Europe are mixed but Energy and Basic Resources are the top performers amid the performance in underlying commodity prices, whilst Healthcare also sees some gains with MorphoSys (+3.0%) a contributor after it received approval for its Lymphoma treatment. The other side of the spectrum sees Banks towards the bottom as yields pull back, whilst Utilities also lag amid the headwinds from energy prices. Aside from that, sectors do not portray a particular theme, with other sectors relatively tentative in comparison. Other individual movers today are again largely dictated and driven by the macro environment. In terms of European oil stocks, analysts at Deutsche Bank (in a note dated today) said “We raise PTs by an average of 8%, and Shell remains our top pick, now followed by BP and then Repsol. We lower our TotalEnergies PT and rating (to Hold) due to continued significant Russia risk exposure, and we lower our OMV PT and rating (also to Hold) in part due to continued Russian risk exposure but also on a weaker YTD petchems environment, higher CapEx guidance than expected with the recent CMD, and the ~EUR 1bn Nord-Stream 2 write-off.”

23 Mar 2022 - 09:48- EquitiesResearch Sheet- Source: Newsquawk