MARKET WRAPS
Watch For:
U.S. S&P CoreLogic Case-Shiller Home Px Index for December; U.S. Conference Board - Consumer Confidence for February; Federal Reserve Bank of Atlanta President Raphael Bostic speaks at virtual event with Duke University students; Federal Reserve Bank of Dallas Interim President Meredith Black speaks at Fed Listens: Pandemic Recovery in Austin Communities virtual event; Home Depot Inc. 4Q results.
Opening Call:
Stock futures fell and oil prices jumped, after Russian President Vladimir Putin ordered troops into two breakaway areas of Ukraine, bringing fears of all-out war to their highest level so far.
Markets were set for losses on Tuesday as Putin ordered forces Monday to "maintain peace" in separatist regions of eastern Ukraine. The announcement raised fears, which have kept investors skittish, that an invasion was about to materialize.
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.
Meanwhile, officials from the European Union referred to Putin's latest moves, including the recognition of the independence of the Russian separatist Donetsk and Luhansk regions' independence, as "a blatant violation of international law."
"Most of the sell-off in global equities this year can be attributed to the hawkish shift by the world's major central banks," Neil Shearing, Group Chief Economist, at Capitol Economics, wrote in a note to clients early Tuesday. "This suggests that there is still significant downside for global stock markets (and upside for safe havens, including US Treasuries) if the conflict escalates."
Risk aversion is likely to continue, said Masahiro Ichikawa, a strategist at Sumitomo Mitsui DS Asset Management in Tokyo. U.S. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov are scheduled to meet on Thursday.
Mr. Ichikawa said a Russian invasion of Ukraine would likely prompt strict economic sanctions from the U.S. and Europe, curbing international supplies of Russian oil. In that scenario, "If oil prices rise sharply beyond $100, gasoline prices will rise in the U.S., and inflation will accelerate further, forcing the Fed to consider raising rates at a faster pace," he said.
Meanwhile, 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.
Stocks to Watch:
Crocs stock is on its heels after the shoe maker's recent earnings. The selloff is a chance to scoop up the shares cheaply, with a caveat.
Crocs made the leap from the garden greens to the red carpet, but while plastic shoes appearing in Vogue may be remarkable, the stock's journey has been even more impressive. The onetime Wall Street darling survived a stock plunge to 79 cents from $75 during the financial crisis to emerge as a pandemic winner.
Not that you would know it from Crocs' recent performance, as the shares tumbled more than 13% on Thursday, despite reporting a robust fourth quarter. That put them down some 36% since the start of the year, and the shares fell again Friday, to around $79.
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When it comes to retailing, the off-price sector has a gold mine of advantages, most of the time. The companies boast a loyal shopper base that loves hunting bargains in its stores, with little to no margin-crunching e-commerce exposure.
It's a great setup -except during a pandemic. That explains why the group has performed so poorly in the past year and a half, compared with other retailers.
Results from T.J. Maxx parent TJX Cos., the largest of the group, will offer a look at how things are playing out. Its fiscal fourth-quarter earnings report is due on Wednesday morning. Expectations aren't high.
TJX is down 14% since the start of the year, and it is in the red on a 12-month basis as well. The Wall Street consensus calls for TJX to earn 91 cents a share from revenue of $14.21 billion.
The Street is still overwhelmingly bullish on the stock, with all but three of 26 analysts tracked by FactSet rating it at Buy or the equivalent. That makes sense given that, as noted above, there is plenty of reason to be upbeat about off-price's overall potential. TJX is the category's biggest player, with some online and international exposure.
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.
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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.
"Geopolitical tensions may dominate other drivers in the near-term but, sooner or later, bonds will have to contend with the looming monetary policy tightening," they added.
The appeal of government bonds as safe havens probably justifies, if not a further drop in yields, at least a pause in their rise, ING's rates strategists said.
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After record inflows in 2021, bond funds have seen a sharp reversal with overwhelming outflows year to date, J.P.Morgan's analysts said, adding that outflows from index-linked ETFs have been particularly heavy so far this year.
In a note J.P.Morgan said that with expectations of Fed tightening rising sharply, last year's rush to protect against inflation via buying index-linked ETFs is now reversing.
JPM's analysts add that year to date, bond funds saw a $22 billion outflow globally, a sharp contrast to the $146 billion inflow into equity funds. This year's outflow from bond funds follows an estimated $1.053 trillion inflow into bond funds last year, surpassing the previous record of 2019, JPM's analysts said.
Commodities:
Oil rose within sight of $100 a barrel as Putin's move to order troops to the two breakaway regions dashes investors' hopes of a diplomatic resolution to the tensions, and heightens fears of a conflict that could disrupt the flow of gas and oil.
"In the last couple of days investors have switched from thinking it is posturing, saber-rattling to thinking there has become a real threat of a conflict and that explains how markets are reacting," Altaf Kassam, head of investment strategy and research for EMEA at State Street Global Advisors, said.
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Benchmark European gas futures jumped 8%, U.K. gas prices also rose over 6% and U.S. benchmark gas contracts gain 2.6%.
Putin's move to recognize the breakaway regions as independent and order in Russian troops, "constitutes a noticeable escalation of the Russia-Ukraine conflict and is likely to see the West respond by imposing tough sanctions on Russia. It also raises the risk of disruptions to Russian oil and gas shipments," Commerzbank said.
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Gold may extend gains to resistance at $1,916/oz on technical charts, DailyFX.com said. With gold having breached a key resistance level at $1,876/oz, this opened the door to further upside potential, with the next resistance at $1,916/oz, the May 2021 high, DailyFX.com said.
The precious metal's overall trend remains bullish-biased, as indicated by the formation of consecutive higher highs and higher lows, while the moving average convergence divergence indicator has formed a bullish crossover and trended higher, suggesting that buying pressure may be building, DailyFX.com added.
TODAY'S TOP HEADLINES
HSBC's Profit Surges, but Bank Takes Hit From China Property
HSBC Holdings PLC reported its highest annual net profit since 2018 and said rising interest rates were likely to boost future returns, even as the banking giant took a charge against potential fallout from the stress in China's property market.
The figures follow a series of strong results for the London-based lender, in which it has cut its stockpile of provisions against pandemic-related bad loans, reinstated dividends and introduced a $2 billion buyback.
Volkswagen in Advanced Talks Over Porsche IPO
BERLIN-Volkswagen AG confirmed it is advanced talks with its largest shareholder about listing sports-car maker Porsche AG on the stock market.
VW and Porsche Automobil Holding SE, owned by the heirs of Beetle designer Ferdinand Porsche, said Tuesday that they had agreed on a framework that could potentially lead to the IPO of the car maker's prized asset. Porsche is a major driver of VW profits and one of its most recognized brands.
NBC Draws Lowest Olympics Ratings Ever With Beijing Games
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02-22-22 0616ET
