MARKET WRAPS
Stocks:
European stocks tumbled Tuesday, in step with a global selloff as Ukraine-Russia tensions ratcheted up, driving up energy prices and the stocks of related companies, such as Shell and BP.
Hopes for a diplomatic solution were fading and fears of a Ukraine invasion rising after Russian President Vladimir Putin on Monday ordered troops into separatist regions of that country and said he would recognize their independence.
The German DAX was down nearly 2%, due to the country's heavy dependence on Russian gas. Russia's benchmark MOEX stock index fell 5%, adding to Monday's 10.5% drop, which was its biggest daily percentage decline in almost eight years.
European natural-gas prices surged. With the worst of the winter months nearly over, President Ursula von der Leyen said over the weekend that Europe can get by in case of "full disruption" from Gazprom.
Still, higher prices will add more pressure on already elevated inflation around the world. "In normal times, central banks would tend to look through an energy-led rise in inflation, but given the current high rates of inflation, and corresponding concerns about it feeding higher inflation expectations, it's possible that this adds to the list of reasons for policy makers to raise interest rates," said Neil Shearing, group chief economist at Capital Economics, in a note to clients.
Banks and pharmaceutical companies were among the biggest decliners. Shares of HSBC fell 1% after the banking giant said fourth-quarter profit more than tripled from a year earlier, but warned of lingering risks from China's troubled real-estate sector. Track the analysts' comments here [https://newsplus.wsj.com/search/realtime/company/?searchParts=[{%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:HSBA.LN%22,%22c%22:%22HSBC%22,%22n%22:%22HSBC%20Holdings%20PLC%20ADR%22,%22cs%22:%22STOCK/US/XNYS/HSBC%22,%22ds%22:%22HSBA.LN%22}, {%22t%22:%22operator%22,%22q%22:%22and%22,%22n%22:%22and%22}, {%22t%22:%22freetext%22,%22q%22:%22market%20talk%22,%22n%22:%22market%20talk%22}]&searchFilterState=open&includeDefaultFilter=true].
Shearing said losses seen by global equity markets this year have largely been due to fears over hawkish central banks, meaning threat of a conflict in Eastern Europe may not be priced in. It could end up erasing Europe's slim outperformance over the U.S. so far this year.
Shares on the move:
Shares in European banks opened sharply lower following a broader risk-off sentiment in stock markets. The U.S. said it would impose new sanctions on Russia, something that could potentially hurt European banks that do business in the country.
Raiffeisen Bank International, which is by far the most exposed to Russia out of major listed European banks, traded 11% lower. Deutsche Bank shares fell 3.7%, UBS was down 3.5%, Societe Generale dropped 3.3%, and Vienna-listed Erste Group slid 3.7%.
---
Hargreaves Lansdown shares topped the FTSE 100 fallers, down 16% after the financial-services firm reported lower first-half profit and said it would suspend its special dividend through 2022 and 2023 to fund a new growth strategy.
Profit fell 2% short of expectations while assets under administration were also 2% lower than forecast, Citigroup said, though a first-half dividend-per-share of 12.3 pence matched hopes.
"Given higher profitability has been back-loaded, with weaker near-term profitability, we expect consensus downgrades and cautious reaction," Citi said.
---
Edenred has posted a strong set of results, Stifel analysts say as shares in the French company rise 5.7%. Ebitda for 2021 came in at EUR670 million--the very top of the company's guidance--and above consensus expectations of EUR658 million, Stifel said.
The corporate-services company's top-line momentum during the fourth quarter of the year was solid, with like-for-like revenue growth beating expectations across regions and business lines, Stifel said.
The company confirmed its mid-term targets and expects to benefit from macroeconomic factors such as inflation, rising interest rates and lower unemployment, Stifel noted. Its M&A firepower amounts to more than EUR1.5 billion, and it intends to press on with its strategy of growing inorganically, Stifel added.
---
Shares in Wood Group fell 13% after the engineering company said it faces further challenges related to the legacy Aegis project in Poland, with another $100 million of exceptional charges on the project to be booked.
The charges are mainly related to future recovery expectations from the project but would also have a cash impact of $20 million, Citi said.
Importantly, and more surprising, Wood Group said that 2021 results will now be delayed due to additional time required to complete the investigation, review and audit work on the project, the bank said.
"Today's announcement will likely weigh on the share price, especially till the complete review of the project is done," Citi said.
Stocks to watch:
Focus will be on Puma's outlook for the year ahead at full 2021 results Wednesday morning, UBS said.
The German sportswear company in January booked expectations-beating sales and operating profit for the year, according to preliminary results, pointing to strong demand that offset headwinds from supply constraints and the pandemic in 4Q.
Investors will be more interested in guidance on current performance, recent regional trends, and the order book as they look to gauge any upside to existing consensus estimates, UBS said. The Swiss bank keeps a buy rating and a EUR113 target on Puma stock.
InterContinental Hotels returning to dividend payments signposts its confidence and financial strength, Jefferies said.
The company said it sees short-term travel volatility but cited industry forecasts of a return to 2019 levels by 2023, the U.S. bank said.
"We like IHG's U.S. exposure, domestic exposure and business model. The return to dividends and strong system growth should drive a re-rating," it said.
Jefferies rates the stock a buy, with a 5,750 pence target price.
Market Insight:
A war in Eastern Ukraine could delay the eurozone's economic recovery in the short term, but it wouldn't significantly impact the region's long-term growth outlook, Berenberg said.
In the first one or two months, there could be a significant risk-off move in markets, a temporary setback to European business and consumer confidence, a further rise in energy inflation, and a more cautious approach from both the BoE and the ECB to remove stimulus, the German bank said.
In the medium and long term, however, the situation would normalize to previous trends for markets, economic growth and monetary policy, Berenberg said. An escalation in the conflict would also mean more military spending and faster diversification away from Russian oil and gas, Berenberg said.
---
The short-term consequence of an escalation of tensions in Eastern Ukraine is a rise in energy prices and a fall in equities, Pantheon Macroeconomics said.
Russia's formal recognition of the independence of Donetsk and Luhansk is likely to be followed by sanctions, but its economic impact is for now difficult to predict without details, the economic-research firm said.
A war in Eastern Ukraine would only have a small direct impact on the eurozone economy as, excluding energy, the links with Russia are a tiny fraction of the region's economy, Pantheon said.
"A combination of war and severe sanctions likely would prompt the ECB to ignore higher inflation, and postpone the withdrawal of stimulus, but only for a short while," it said.
U.S. Markets:
U.S. stock futures fell, putting indexes on course for losses when markets reopen following the Presidents Day holiday.
The White House said President Joe Biden will issue an executive order that "will prohibit new investment, trade, and financing by U.S. persons" in those areas.
Fourth-quarter earning season resumes, with results from Agilent Technologies, Home Depot, and Medtronic.
The economic data highlights of the week will include IHS Markit's Manufacturing and Services Purchasing Managers' Indexes for February and the Conference Board's Consumer Confidence Index for February--all on Tuesday. The surveys are each expected to come in flat to down versus January.
Forex:
The dollar and other safe haven currencies are likely to strengthen as the Ukraine crisis looks increasingly alarming, ING said. "Markets may start to materially price in a fully-fledged invasion of Ukraine after Russia officially recognised Eastern-Ukraine separatists and moved troops to the region," ING analysts said.
With that in mind and acknowledging the high volatility and unpredictability of the situation, "upside risks" should prevail for safe haven currencies including the dollar, Japanese yen and Swiss franc, they said.
Meanwhile, European currencies positively correlated to risk appetite such as the Norwegian krone and Swedish krona will remain the most vulnerable, they said.
---
The Russian ruble could weaken sharply in the short-term on fears over the Russia-Ukraine crisis, but it may stabilize in the longer term as Russia's central bank raises interest rates, Commerzbank said.
USD/RUB is likely to rise significantly in the near-term, as details over western sanctions against Russia are unclear Commerzbank currency analyst Tatha Ghose said in a note.
"In the longer-term, details will become clearer, but by this time Russia's central bank would have pre-empted the exchange rate depreciation with calibrated rate hikes."
That means sanctions might not matter as much for the ruble as some fear, he added. USD/RUB falls 1.1% to 79.6905.
Bonds:
The yield on the benchmark 10-year U.S. Treasury note dropped to 1.903%.
Current government bond yield levels reflect an "unhappy medium" between geopolitical tensions and the prospect of tighter monetary policy, ING's rates strategists said.
(MORE TO FOLLOW) Dow Jones Newswires
02-22-22 0646ET
