EUROPEAN EQUITY UPDATE: Stocks slump as Russia-Ukraine tensions escalate

Analysis details (09:31)

European equities (Eurostoxx 50 -0.8%, Stoxx 600 -0.7%) have kicked the week off on the backfoot as the negativity from last Friday has continued into this week. The holiday-thinned lead from Asia was a despondent one as the region reacted to a contraction in Chinese Caixin PMI data and the recent stronger-than-expected US jobs data. From a European standpoint, focus has predominantly fallen on the escalation in tensions between Russia and Ukraine after Russia accused Ukraine of being responsible for the explosion at the Kerch Bridge in Crimea. In response, multiple explosions have been heard across Ukraine including Kyiv with reports suggesting that missiles have struck critical infrastructure objects in the capital. Note, Russian President Putin will be holding a meeting with his Security Council today. Stateside, futures are softer (ES -0.7%, NQ -0.8% RTY -0.6%) but to a lesser extent than European peers. Today’s session is a quiet one on the data front but will feature commentary from Fed Vice Chair Brainard. Beyond today, this week sees Fed meeting minutes and US CPI which will help shape expectations further into the November 2nd FOMC. In terms of desk views, Goldman Sachs’ Kostin has flagged the potential headwinds of a stronger USD ahead of earnings season given that “roughly 30% of revenues for US companies are generated overseas”. Other potential risk factors to earnings include headwinds to margins amid a combination of softening demand and excess inventory which will limit the ability of some firms to increase prices, whilst 2023 tax adjustments were also flagged. Elsewhere, Morgan Stanley maintains its bearish view with strategist Wilson cautioning that the bear market in the US will not be over until earnings forecasts are lowered further or the risk of such is reflected in P/E valuations. Other bearish stances include Bernstein whereby analysts caution that further downside in equities will be forthcoming given that earnings estimates and investment flows are yet to bottom. Sectors in Europe are predominantly softer with the exception of Retail and Telecoms. To the downside, Consumer Products, Tech and Utilities lag. In terms of individual movers, Credit Suisse (+2.9%) is firmer on the session amid reports suggesting the Co. is to ramp up efforts to strengthen its finances whilst the Co.’s SPG unit has reportedly drawn interest from Pimco and Centerbridge, according to Bloomberg. Renault (+3.7%) is another strong performer amid reports that Nissan is pressing the Co. to sell down a portion of its stake in the auto maker. To the downside, ams-OSRAM sits at the foot of the Stoxx 600 following news that its CFO is to step down.

10 Oct 2022 - 09:31- Research Sheet- Source: Newswires