MARKET WRAPS
Stocks:
European stock indexes wavered as investors watched for signs of escalation between Moscow and the West, alongside the potential for a diplomatic solution.
Russia's deployment of more than 100,000 troops along the country's border with Ukraine has led to the biggest standoff between Moscow and the West in years, with the U.S. warning of an imminent Russian invasion of its neighbor.
On Sunday, President Biden agreed to meet Russia's President Vladimir Putin, if Moscow pulled back from the potential attack.
"Markets find it fiendishly difficult to price in geopolitical risk," said Edward Park, chief investment officer at U.K. investment firm Brooks Macdonald. "Over the weekend, we've had a worsening and then an improvement of sentiment. It does seem that we'll have another week of uncertainty."
The MOEX, Russia's benchmark stock index, fell 2.8%. Ukraine's hryvnia fell against the dollar, while the Russian ruble strengthened against it. Some economists think Russia may be tapping into its vast foreign-currency reserves to help steady its currency.
Investors worry that a war between Ukraine and Russia could prolong elevated inflation in developed economies by disrupting supplies of important commodities. Russia is among the world's largest suppliers of oil, as well as the biggest exporter of wheat, and a major metals producer. Ukraine is also a major world supplier of corn and wheat.
Shares on the move:
Shares in Morses Club dive 67% after the financial services group issued a profit warning, said the CEO is leaving and that he has sold a significant part of its shareholding. The company also says profits will be below expectations as a result of increased activity by claims management companies.
"There is no clear reason for the increase in recent days and weeks of this activity, but it is clear it has picked up again and is difficult to predict what impact this will have on future profitability and therefore the returns that the home-collected credit business can generate," Peel Hunt said.
The brokerage says this is disappointing news for Morses, putting its forecasts and stock recommendation under review. Morses Club is a corporate client of Peel Hunt.
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Clipper Logistics' takeover by GXO Logistics makes sense strategically, as it would complement GXO's existing expertise and increase its scale in important markets, AJ Bell said.
The logistics service provider made a name for itself recently through coordinating e-commerce return services for most of the big U.K. retailers, AJ Bell said.
"With the U.K. market still trading on a cheaper level--relative to other places like the U.S.--we're likely to see further takeover action, " AJ Bell said.
While this is good for short-term investors as it quickly boosts asset values, it isn't necessarily good long-term, for long-term investor wealth or market reputation if the pool of companies shrinks, the U.K. brokerage said. Shares were up 14%.
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Galp's 4Q adjusted earnings miss expectations, but shareholder remuneration plans should be welcomed by the market, Jefferies said.
The Portuguese energy company's quarterly adjusted net income and adjusted Ebitda are 15% and 2% below consensus expectations, according to analysts at Jefferies.
Yet, "Galp surprises on the shareholder remuneration front by introducing a buyback with expectations set for a variable dividend instead," the bank said.
The planned EUR150 million share-buyback program would be equivalent to EUR0.18 a share if paid as a dividend, taking the total remuneration related to 2021 to a dividend-equivalent level of EUR0.68 a share, 17% ahead of consensus, Jefferies said. Shares trade 1% lower at EUR9.90.
Stocks to watch:
Renault's results for 2021 showed a beat across the board, said Stifel.
The French car maker's results included automotive operational free cash flow of EUR1.27 billion for the year, which compares with consensus estimates of EUR0.45 billion, said Stifel.
As for the auto maker's guidance for the current year, 2022, which includes a group operating margin of at least 4%, Stifel said the company targets are where consensus expectations currently stand.
"In our understanding, these numbers are seen as a floor, and we assume that the guidance was expected to be cautious," said Stifel. Renault shares traded down 0.4% at EUR36.18.
Electricite de France is expected to face another year of challenge--in terms of earnings and cash flow--but negative news seem to be well priced in, said Bryan Garnier.
The French energy player said it would reinforce its balance sheet through a capital increase and additional disposals, but hasn't provided specific guidance for the current year.
"With EUR8 per share as the reference price, and a discount in line with market practices, we expect the subscription price to be set at around EUR6 per share," Bryan Garnier said. "Negative news is now well priced in, so any good news could revive the stock price."
Data in focus:
Eurozone PMIs in February point to solid 2Q economic growth, track the economist' comments here .
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Another interest rate rise by the BOE in March looks increasingly inevitable, IHS Markit said in its U.K. purchasing managers' index survey compiled with CIPS.
With the PMI's gauge of output growth accelerating markedly in February and cost pressures intensifying, the BOE is likely to raise rates further, IHS Markit economist Chris Williamson said in the survey.
However, "downside risks" to the demand outlook have increased due to the rising cost of living, higher energy prices and increased uncertainty caused by the escalating crisis in Ukraine, he said.
Economic activity in the U.K.'s private sector accelerated sharply in February as consumer service providers benefited from the easing of Covid-19 restrictions, according to preliminary data from a purchasing managers survey.
The IHS Markit/CIPS composite PMI increased to 60.2 in February from 54.2 in January, an eight-month high. The gain was led by services, particularly by the recovery in consumer spending on travel, leisure, and entertainment, the report said.
Severe inflationary pressures persisted amid higher wages, energy bills and raw material costs, it said.
"With the PMI's ... accelerating markedly in February and cost pressures intensifying ..., the odds of an increasingly aggressive policy tightening have shortened, with a third back-to-back rate rise looking increasingly inevitable in March," IHS Markit said.
Market Insight:
Stocks and corporate bonds could both gain on easing tensions between Russia and Ukraine, Mizuho said. "In the event of more positive headlines we expect an inevitable relief rally in credit/equities," Mizuho analysts said, advising clients to look for more selling opportunities.
The office of French President Emmanuel Macron said late Sunday that President Joe Biden and Russian President Vladimir Putin had agreed in principle to a summit to discuss the situation in Ukraine. Fears of an imminent Russian invasion of Ukraine triggered losses in risk assets as sentiment soured last week.
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The ECB is on course for a policy mistake if, as expected, it announces an acceleration of the end of asset purchases in March and doesn't challenge market expectations of rate hikes in 4Q, said Erik F. Nielsen, group chief economics advisor to UniCredit.
"[The ECB] will be providing a double whammy to the economy by putting a brake on economic growth at the same time as households are suffering a decline in real income from the supply-driven higher inflation, with very little prospect of wage growth accelerating to a rate above productivity growth," he said.
Whether monetary policy will be corrected afterwards will depend on the exact path of eurozone's GDP and labor markets, Nielsen said.
U.S. Markets:
U.S. stock markets will be closed Monday for Presidents Day.
Forex:
The dollar fell as hopes for a diplomatic solution to the Ukraine crisis drives investors away from safe-haven assets. U.S. President Joe Biden and Russian President have agreed in principle to a summit over Ukraine provided Russia doesn't invade its neighbor.
Details of the summit will be discussed during a meeting between U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov on Thursday.
"The developments have raised fresh hopes that a last-minute diplomatic solution can be reached to avoid [Russia invading Ukraine]," MUFG Bank analysts said.
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The euro extended gains against the dollar but only slightly after a key survey showed eurozone services activity expanded at a faster pace in February, although manufacturing activity growth slowed.
Bonds:
Eurozone government bonds could continue to trade in a range until the first releases of preliminary February inflation data later this week, Morgan Stanley's rates strategists said.
They added that yet more, stronger inflation data could fuel speculation of an early interest rate rise by the ECB, leading to a new wave of bond selling and wider government bond spreads, they added.
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Improved market sentiment is likely to boost new sales of euro high-yield corporate bonds, UniCredit said.
"The improved market sentiment is...likely to lift primary market activity, which suffered notably in the high yield non-financials segment," analysts at the Italian bank said.
Sales of riskier corporate debt are lagging behind last year's volumes due to a more volatile start to the year. Companies have placed EUR10.6 billion of new high-yield nonfinancial bonds so far this year, 54% below the volume in the same period last year, they said.
Commodities:
Oil prices pared earlier gains after U.S. President Biden agreed to a summit with Russian President Vladimir Putin over Ukraine. Brent had earlier jumped as high as $94.97 in Asian trading before slipping.
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02-21-22 0632ET
