UKX FTSE 100 Index

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%.

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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.

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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.

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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.

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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.

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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.

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JPMorgan is advising clients to be long euro corporate bonds despite recent fund outflows. "We think the risk-reward balance is skewed toward being long credit, although uncertainty is very elevated," the U.S. investment bank said, adding that it recommends that investors buy euro investment-grade total return swaps rates hedged and extend credit duration into 10-year debt rated single-A.

"We believe that euro credit markets are already trading cheap, with a lot of risk in the price," it added.

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Italian debt is likely to remain on a downward trajectory even at higher yield levels than currently, J.P.Morgan's analysts said. After the ECB's recent "hawkish" pivot, eurozone government bond markets abruptly priced in frontloaded interest rate rises and a sharp widening of country spreads, most notably in Italy, but higher borrowing costs aren't an immediate worry, they added.

"These funding cost pressures must be balanced against our view that Italy is also benefiting from reflationary forces in the region as well as from a significant reform effort and an investment agenda spearheaded by PM Draghi," they added.

However, the interplay between financial market conditions, growth, fiscal outturns and monetary policy choices bears close monitoring as the ECB begins to normalize policy, they added.

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Inflation risk and Russia's possible invasion of Ukraine could drive euro corporate bond defaults higher than anticipated this year, S&P Global Ratings Research said.

The rating agency's baseline forecast is that trailing-12-month high-yield corporate default rate will rise to 2.5% by December 2022 from 1.8% the same month the year before.

However, "risks to the baseline are increasing as inflation rises amid the prospect of tighter monetary policies and the ongoing Russia-Ukraine situation," it said. Its pessimistic scenario projects the default rate will jump to 5% in the same period, with 39 defaults.

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.

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.

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.

EMEA HEADLINES

Putin Orders Deployment of Troops to Breakaway Regions in Ukraine

Russian President Vladimir Putin ordered Russian troops into two breakaway regions of Ukraine after recognizing their independence, a move that threatened to scuttle negotiations with the West over the future security of Eastern Europe.

His two decrees were published on the Russian government's legal portal after a televised address late Monday in which Mr. Putin laid out grievances about the West's support of Ukraine after the collapse of the Soviet Union and Western arms deliveries to Kyiv against the backdrop of a massive Russian troop buildup near its borders.

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.

German Business Sentiment Rises in February

German business sentiment has improved for the second consecutive month in February, amid an easing in coronavirus cases.

The Ifo business-climate index increased to 98.9 points in February from 96.0 points in January, data from the Ifo Institute showed Tuesday.

SAS Launches Plan to Cut Costs by $799 Mln and Raise New Capital

Scandinavian airline SAS AB on Tuesday outlined plans for a full transformation of the company as it cautioned that without fundamental change it will soon run out of cash.

SAS said the plan will encompass a full transformation of its business, including its network, fleet, labor agreements and other cost structures that among other things will see annual cost cuts of 7.5 billion Swedish kronor ($799 million), rightsizing the fleet including refocusing its long-haul business, investing in fuel-efficient aircraft and raising new capital.

Fresenius 4Q Profit Rose; Sets 2022 Guidance

Fresenius SE & Co. KGaA on Tuesday said profit rose in the fourth quarter of last year and set guidance for 2022.

The German healthcare company reported a quarterly net profit before special items of 521 million euros ($590.8 million), from EUR494 million in the previous-year period.

Coca-Cola HBC 2021 Profits Rise on Higher Volumes

Coca-Cola HBC AG on Tuesday reported a rise in net profit for 2021 on growing revenue and higher volumes, and raised its dividend.

The Switzerland-based bottler for Coca-Cola Co.--listed in both London and Athens--reported a net profit of 547.2 million euros ($613.9 million) for the year, compared with EUR414.9 million in 2020 and consensus of EUR533.3 million, taken from FactSet and based on 16 analysts' forecasts.

Antofagasta 2021 Profit Soared on Higher Copper Price

Antofagasta PLC on Tuesday reported that its profit more than doubled in 2021, reflecting stronger copper prices, and declared a significantly higher final dividend.

The Chile-focused miner made a pretax profit of $3.48 billion last year, up from $1.41 billion in 2020.

Worldline Shares Jump on Better-Than Expected Revenue

Shares of Worldline jumped Tuesday after the French payments company posted fourth-quarter revenue ahead of market expectations.

At 0950 GMT, Worldline shares traded 9.2% higher at EUR46.85.

AngloGold Ashanti 2021 Profit Fell on Lower Production, Higher Costs

AngloGold Ashanti Ltd. on Tuesday reported lower a net profit for 2021 as gold production fell and operating costs rose.

The South African gold miner posted net profit of $622 million last year, down from $946 million in 2020.

Weather Delays Effort to Steady Burning Ship Carrying Porsche, Bentley, VW Cars

Heavy tugboats reached the Felicity Ace, a merchant ship with a hold full of German luxury cars that has been drifting ablaze in the Atlantic for nearly a week, but bad weather delayed the arrival of other ships needed to steady the vessel and stop the blaze.

The intensity of the fire has weakened, local authorities and SMIT Salvage said Monday, but the ship is still burning and too hot to board.

GLOBAL NEWS

Bearish Bets Against Markets Are Surging

Investors are wagering that the recent pain in the stock and bond markets will intensify.

Short sellers are adding to their positions against the SPDR S&P 500 Exchange-Traded Fund Trust, which tracks the broad U.S. stock index, at the fastest rate in nearly a year. Other investors are scooping up at record pace options contracts that would pay out if the recent declines in the stock and bond markets worsen.

Frackers Push Into Once-Dead Shale Patches as Oil Nears $100 a Barrel

Spurred by the highest oil prices in years, shale companies are moving drilling rigs back into oil fields that were all but abandoned a few years ago.

Private oil producers are leading an industry return to places like the Anadarko Basin of Oklahoma and the DJ Basin in Colorado, where drilling had almost completely stopped in mid-2020 when those areas became unprofitable because of lower oil prices.

Online Real Estate Isn't Worth the Chance

You can make a lot of money on physical real estate right now, but recent results from major online real-estate players show 2022 isn't the year to play Monopoly in the stock market.

The carnage isn't about any one company. Since Compass's initial public offering last April, the S&P 500 is up more than 8%, while online real-estate stocks including Redfin, Zillow Group, Opendoor Technologies and Compass are down about 58% on average over that period. Their similar losses have come despite the fact each platform boasts a different business model-Opendoor is a pure-play iBuyer, Zillow is an iBuyer returning to an agent ad business, Redfin is a hybrid broker that also dabbles in iBuying and Compass is an old-school brokerage firm dressed up as a technology company.

Fed Official Leaves Door Open to Larger Rate Increase in March

Federal Reserve governor Michelle Bowman said Monday she had an open mind over whether the central bank should kick off interest-rate increases next month with a larger half-percentage-point rate rise.

Ms. Bowman's comments follow remarks at the end of last week by two of the most senior Fed officials that pushed back against the prospect of a larger rate rise at their next meeting, March 15-16.

Exodus From Bond Funds Is Mitigating the Stock Market's Swoon

The bad news in the bond market has been a rare boon for stocks.

Investors pulled nearly $160 billion from money-market funds and $17.5 billion from bond mutual funds and exchange-traded funds in the first seven weeks of the year, according to Refinitiv Lipper. The exodus is already on pace to be the biggest in at least seven years.

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(END) Dow Jones Newswires

February 22, 2022 06:46 ET (11:46 GMT)

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