MARKET WRAPS
Stocks:
European stocks declined on Tuesday with attention still trained on the isolation of Russia from global financial markets after its invasion of Ukraine.
Heavy fighting continued in Ukraine, with the country's second-largest city Kharkiv bombarded. The Central Bank of Russia kept the local stock market closed for a second day after the U.S. barred transactions with it.
Rheinmetall rose for a second day, gaining 5%, after Germany said it would spend EUR100 billion to boost its armed forces.
Traders also eyed the latest set of corporate results. HelloFresh, the mealkit preparation company, dropped 8% after missing forecasts on adjusted earnings before interest, tax, depreciation and amortization.
Covestro jumped 4% as the chemicals company said it would make the highest payout in company history and authorized a EUR500 million stock buyback.
Flutter Entertainment dropped 9% after booking a GBP543 million charge and saying revenue growth slowed to 2% in the first seven weeks of 2022. It still expects its FanDuel unit to be profitable in the U.S. in 2023.
Shell said it would exit its joint ventures with Russian energy giant Gazprom PJSC, a day after BP said it would divest its nearly 20% stake in Russia's state-controlled oil producer Rosneft, track the analysts' comments here [https://newsplus.wsj.com/search/realtime/company/?searchParts=[{%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:GB00BP6MXD84%22,%22c%22:%22NL:SHELL%22,%22n%22:%22Shell%20PLC%22,%22cs%22:%22STOCK/NL/XAMS/SHELL%22,%22ds%22:null}, {%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].
Shares on the move:
Atos's guidance for the current year will lead to further cuts to consensus expectations for the French IT company, said Citi. While the revenue outlook for 2022 was in line with estimates, the company's full-year targets for operating margin and free cashflow are missing expectations, the U.S. bank said.
Atos had released preliminary figures for the past year in January and investor sentiment ahead of the company's update late Monday was already relatively pessimistic as consensus estimates for Atos had been lowered this year, said Citi. Shares in Atos were trading down 6.6%.
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Flutter Entertainment's 2021 Ebitda excluding the U.S. was down 10%, but Peel Hunt reiterates its buy recommendation as it says the shares represent good value following a period of decline.
The recommendation is based on the Sisal deal in Italy, which is due to complete, and strong market leadership in the U.S., the U.K. brokerage said.
Revenue growth is seen accelerating in the second half as the first six months present tough comparatives, it said.
The revenue contribution from Russia and Ukraine is in jeopardy, but its exposure to the countries has been falling, with the GBP60 million contribution in 2021 being 4% of group Ebitda excluding the U.S. Peel Hunt reiterates its target price of 14,500 pence. Shares traded down 15%.
Stocks to watch:
Carlsberg's shares are down 14% year-to-date, underperforming the Stoxx Europe 600's food & beverage index by 6%, largely due to concerns about Carlsberg's exposure to Russia and Ukraine which together account for around 8% of group Ebit, Deutsche Bank said.
The bank believes the situation presents a number of risks to Carlsberg's share price, including operational disruption, foreign exchange headwinds, weaker consumer spending, and elevated input costs.
Deutsche Bank updates its estimates for recent foreign exchnage moves and the current closure of Carlsberg's operations in the Ukraine. It cuts its EPS estimates by 5.5%, 4.5% and 3.4% for FY22, FY23 and FY24 respectively, and lowers its target price on the stock to DKK1090 from DKK1120, rating it at hold.
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Adidas's shareholder returns could top EUR3 billion this year, Bryan Garnier said after the German sportswear major set out a new buyback of up to EUR1.5 billion from the cash proceeds of the now completed sale of Reebok.
Adidas previously indicated it would return the proceeds to shareholders as part of a wider strategy, with the program adding to a share buyback set out at the end of last year of up to EUR4 billion to 2025.
With the dividend expected around EUR3.20 a share, investors could get up to EUR3.1 billion in returns in 2022, Bryan Garnier said, keeping a buy rating and a EUR335 target on the stock. Shares rise sightly to EUR212.50.
Data in focus:
Eurozone inflation rose to a record high of 5.1% year-on-year in January, but given the war in Ukraine and its impact on energy prices, UBS said a further rise now looks almost certain.
UBS now forecasts eurozone headline inflation to peak at 5.9% in April, up from 5.4% previously expected. Inflation would average 5.0% in 2022, revised up from 4.5% in previous forecasts, and 1.7% in 2023, slightly up from 1.6%.
Given recent events in Ukraine, UBS sees the forecast risk as skewed to the upside, particularly in the near term. Economists at UBS explain that the upward revision is driven by higher energy prices and January's increase in the weighting of energy in the inflation basket to 10.9% from 9.5%.
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Germany's annual rate of inflation is expected to rise at a faster pace in February than in January, but remaining below the December peak of 5.3% year-on-year, according to UniCredit Research's forecasts. Economists polled by The Wall Street Journal forecast Germany's inflation rate at 5.1% in February, up from 4.9% in January.
The major drivers of the inflation acceleration are likely once again higher prices for energy and goods due to persistent supply shortages, UniCredit Research said.
"In light of the Russia-Ukraine crisis, inflation rates are likely to remain elevated or even increase in the next few months before a sluggish deceleration in annual inflation sets in," UniCredit Research said. Germany's inflation data will be published at 1300 GMT.
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Supply problems in German retail have worsened in February, the Ifo Institute said. According to a survey, 76.3% of retailers said they didn't receive all the goods they ordered in the month, up from 57.1% in January.
More supermarkets complained of supply bottlenecks than in the previous month, 60.5% of those surveyed, up from 18.4% in January. The situation remains tense for sellers of toys, bicycles, and cars, with around 95% of businesses in each sector reporting supply problems, Ifo said.
The furniture sector also faces a worsening situation, with 90% of the companies reporting problems, up from 66.6% in January. Ifo said trade is currently facing the challenges of supply bottlenecks and inflation.
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The eurozone manufacturing sector proved solid in February, ahead of possible disruptions related to the Ukraine crisis, Oxford Economics said. The eurozone manufacturing purchasing managers index for February remained firmly in expansionary territory, at 58.2.
Looking at country level data, all four major eurozone economies showed strong trends in manufacturing activity over the month, with all manufacturing PMIs standing well above the 50-mark that separates contraction from expansion, Oxford Economics said.
But looking ahead, soaring energy prices are likely to put further pressures on input and output inflation and to weigh on client demand and firms' confidence. Oxford Economics expects risks to remain tilted to the downside.
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Demand for German manufactured goods was strong in February, with new order growth accelerating and the purchasing managers index survey showing rising sales both domestically and internationally, IHS Markit said.
Germany's manufacturing PMI registered 58.4 in February--firmly above the 50.0 mark separating growth from contraction--but down from January's 59.8. Growth of output remained strong but was constrained somewhat by a temporary decline in staff availability owing to coronavirus-related absences, IHS Markit said.
However, with COVID-19 cases in the country looking like they might have peaked, this particular headwind will hopefully only be temporary, IHS Markit adds. Supply constraints showed further tentative signs of easing in February and the rate of input cost inflation fell to an 11-month low.
Market Insight:
The war in Ukraine poses a significant downside risk for the eurozone economy, but it isn't likely to push it into recession, Capital Economics said.
The economic-research firm estimates that the crisis will reduce the region's GDP by less than 0.5% for as long as the current sanctions are in place and energy prices remain high.
The main impact will be felt via trade with Russia and reduced household consumption, but this will likely be cushioned by looser fiscal policy and high excess savings, Capital Economics says.
U.S. Markets:
Stock futures slipped following days of whipsaw moves prompted by Russia's invasion of Ukraine.
Ceasefire talks have failed to produce concrete results so far, but investors have welcomed the fact that they have begun. Still, Moscow is expected to increase the tempo of its assaults on major Ukrainian cities and is pouring manpower and equipment into the country.
"I am not sure what we will see from negotiations, but on the ground there will be no let up because Putin has to come away from this war with something to show for it," said Hani Redha, a portfolio manager at PineBridge Investments. "You will only see strengthened resolve from Russia."
Investors are trying to gauge how the fighting in Ukraine might influence central bankers' outlooks.
"I would not bet that the Fed is going to change their course," he said. "The first few hikes are almost set in stone at this point."
Later in the day, investors will view the Institute for Supply Management's survey of purchasing managers, which is expected to show U.S. factory activity continued to rise in February as the Omicron wave faded.
Forex:
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03-01-22 0647ET
