EUROPEAN EQUITY UPDATE: Stocks slip on sanctions at the beginning of a risk-packed week

Analysis details (09:29)

Equities in Europe kicked off the week with deep losses across the board following a cautious APAC session and after the West upped the ante on Russia over the weekend. As a reminder, the EU over the weekend announced that certain banks are to be removed from SWIFT, CBR assets were frozen and a ban on Russian oligarchs from using financial assets in Western markets. Meanwhile, Russian President Putin over the weekend ordered Russia's military to put its deterrence forces, which include nuclear weapons, on "special alert". US equity futures saw heavy pressure at the reopen but have lifted off worst levels since, with relatively broad-board losses across the ES (-1.9%), NQ (-1.7%), YM (-1.5%) and RTY (-2.1%). Turning to some macro commentary from JPM, the desk suggests that “if one is selling on the back of the latest geopolitical developments now, the risk is of getting whipsawed.”, adding that historically, military conflicts do not tend to hurt investors for too long and would end up as buying opportunities. Despite these comments from JPM, traders need to be cognizant of the sustained inflationary repercussions from military conflicts/sanctions in the context of global central bank tightening – particularly from energy and other Russian commodities soaring overnight. JPM added “we believe that Europe and Banks should continue to be seen as fundamental OWs on anything longer than the 1-month horizon, especially if commodity flows are not cut from Russia.” Back to Europe, Euro bourses see varying degrees of losses (Euro Stoxx 50 -3.1%; Stoxx 600 -1.8%) whilst the SMI (-0.7%) and FTSE 100 (-1.4%) see shallower losses amid a strong performance across healthcare amid some defensive flows. On that note, the Defence sector in Europe surges on the heightened geopolitical tensions coupled with German Chancellor Scholz’s announcement that they are to supply EUR 100bln for military investments from the 2022 budget. As such, the Stoxx 600 top gainers consist of Rheinmetall (+29%), Leonardo (+13.6%), BAE System (+13.4%), and Thales (+12.0%). Conversely, the announcement of the SWIFT elimination for some Russian banks has weighed heavily on some European peers, with the Stoxx 600 losers consisting of Raiffeisen Bank (-16.7%), ING (-17%), SocGen (-10%), Deutsche Bank (-9.0%), BNP (-8.5%), ABN AMRO (-8.3%). Among today’s laggards, BP (-7.3%) slumped after announcing that it is to exit its 19.75% shareholding in Rosneft and other businesses with Rosneft in Russia; BP is to take a charge of up to USD 25bln on Rosneft. In terms of other movers, Renault (-9.0%) continues to be weighed on by its operational exposure to Russia whilst Ericsson (-7.0%) is pressured after leaked files via The Guardian suggested alleged corruption.

28 Feb 2022 - 09:29- Research Sheet- Source: Newsquawk