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STOXX 600 OPENS NEAR MAY 2021 LOWS (08:15 GMT)
European stocks opened around 0.9% lower as sentiment deteriorated over the past hour with Wall Street futures swinging into the red.
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At around 438 points, the STOXX 600 was at this point only 1% off its May 2021 lows.
Within about 20 minutes, the trend reversed and the pan-European index was fluctuating above and below float level.
One thing is certain: the automotive and parts sector is once again the worst performer, with tire manufacturer Nokian Renkaat down 17% at the open.
The pressure was also relentless on European banks losing 1.5% and well into bearish territory.
Not all market price actions were related to the war in Ukraine and French pharmaceuticals group Biomerieux plunged 12% after issuing a disappointing full-year forecast.
Sweden’s Ericsson was also one of the biggest losers, -9.5%, after being informed that he had been informed that the revelations he had made to the US Department of Justice (DoJ) about an internal investigation into the conduct in Iraq were insufficient. Read more
Despite all the gloom this morning, London’s FTSE 100 (.FTSE) is in positive territory thanks to miners and energy which are again in high demand this morning.
A TURNING POINT FOR THE MARKETS (07:45 GMT)
When the yield on the benchmark German Bund, considered one of the safest assets in the world, posts its biggest one-day drop since 2011 (as it did on Tuesday), something has changed.
Lower borrowing costs in Germany, with 10-year yields back in negative territory where they remain this morning, echoes similar moves in other major bond markets and is symptomatic of a big shift in the investors’ way of thinking.
Russia’s invasion of Ukraine almost a week ago changes the landscape for investors, stick to safety (read sovereign debt, US dollar), stay away from risky assets .
Perhaps more notable is the growing doubt on this overarching theme that central banks would step up their exit from the post-pandemic stimulus. It’s more complicated since inflation is high, but the new surge in oil prices will probably slow growth and hurt consumption.
So yes, the Bank of Canada will likely raise rates later on Wednesday, with the US Federal Reserve and Bank of England still expected to follow later in March. But markets are increasingly pricing a more cautious path – particularly in the euro zone where market prices took a dramatic turn on Tuesday.
Money markets are now pricing in just 14 basis points of ECB rate hikes by the end of the year, down from 50 basis points last month.
Eurozone inflation flash data due out later in the session is therefore unlikely to change this view, even if it shows that the headline inflation rate will hit new highs, as analysts predict. Read more
And with Russia bombing Ukrainian cities and the United States banning Russian flights from its airspace, the mood in global markets remains grim. Read more
The Japanese Nikkei closed nearly 1.7% lower, US and European stock futures are in the red and oil prices jumped to a fresh 7-year high above $110. A meeting of the Organization of the Petroleum Exporting Countries, Russia and its allies, known as OPEC+, may later prove interesting. Read more
Key developments that should further guide markets on Wednesday:
– OPEC and non-OPEC ministerial meeting by videoconference.
– Eurozone flash HICP
– Bank of Canada policy meeting
– Fed Speakers: Chicago Chairman Charles Evans
– The Fed publishes a beige book of economic conditions
– European benefits: Telekom Italia, Just Eat, Polymetal, Entain, Aviva, Persimmon,
– American profits: Abercrombie and Fitch, Dollar Tree, American Eagle
UKRAINE: A LOW RISK OF CONTAGION FOR EUROPEAN BANKS? (07:40 GMT)
Eurozone banks are down about 25% from their Feb. 10 highs and there’s a good chance their stock prices will plunge even further as sanctions on Russia continue to rattle markets. financial.
For economist Berenberg Kallum Pickering, the risk for the sector is manageable and does not at this stage justify fears of a banking crisis in Europe.
Pickering said his firm’s banking team sees low risk of contagion because direct and indirect exposure to the Russian economy is limited and “generally the most exposed companies are relatively small.”
“Furthermore, the largest banks are unlikely to fall below regulators’ capital requirements, even if they were forced to write down or sell all Russian exposures,” Pickering wrote in a note today.
British and European banking regulators should also have the necessary means to manage the pressure on the banking system.
“This could include responding to any increase in demand for reserves, allowing banks to spread losses over several years and giving some leeway to companies that are required to raise capital,” the Bank explained. economist Berenberg.
“It seems unlikely, in our view, that potential problems for a handful of banks could threaten to disrupt the normal flow of credit to such an extent that policymakers could not, with relative ease, remedy these problems.” , he concluded.
WHEN DEFENSE ACTIONS BECOME AN UNLIKELY ESG GAME (0720 GMT)
Missiles, tanks and fighter jets do not immediately come to mind when one thinks of stocks likely to benefit from the trend towards ESG (Environment, Social, Governance) investing.
Yet even if Russia’s invasion of Ukraine is rapidly changing the geopolitical paradigm of recent decades, it could be the case for this style of investing.
“We believe defense will likely increasingly be viewed as a necessity that facilitates ESG as a business, as well as the maintenance of peace, stability and other social goods,” the analysts wrote. from Citi in a note this morning.
“We believe recent events in Europe will significantly increase the likelihood of defense being included in the EU social taxonomy,” they also said.
Germany announced this weekend a sharp increase in defense spending to more than 2% of economic output to deal with the challenges posed by Russia’s invasion of Ukraine, which has further boosted stockpiles. European defence.
NO WORSE, NO BETTER (06:53 GMT)
There is no reason this morning for European stocks to rebound from yesterday’s fall, but by the same token there is no sense that the situation has deteriorated significantly overnight in terms of continental stock markets.
Futures are trading around 0.3% in the red for European blue chips and up 0.4% for the FTSE 100. Contracts for Wall Street stabilized after heavy losses yesterday.
Asian stocks end in an orderly retreat of around 0.6%, but oil prices rise amid fears of supply disruption due to heavy fighting in Ukraine.
If the forex markets are to be taken as a risk indicator, the markets appear to be risk free with the dollar index up 0.26% and the euro down 0.2%.
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