EUROPEAN NOON BULLETIN – Stocks rise, oil prices rebound

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European stocks rose as investors closely watched news of Russia’s war on Ukraine and reacted to swings in oil prices.

Brent futures, the international benchmark, rose 2.2%. Oil prices are near their highest level in years, despite falling in recent days.

The prospect of increased supply has helped ease some fears of a supply shortage. Earlier this week, the United Arab Emirates said it would push the Organization of the Petroleum Exporting Countries to pump more oil.

“Both contracts could easily be back to $115 and higher on any negative headline, it’s just that kind of market,” said Jeffrey Halley, analyst at broker Oanda. “Staying away as oil markets become increasingly irrational will allow you to enjoy your weekend.”

Shares of Telecom Italia and Italian aerospace maker Leonardo were among those that led the index higher, each rising 7% or more.

The rapidly evolving sanctions imposed on Russia by the West have clouded the ability of traders to foresee how trade and supply chains might be disrupted. Investors have been closely following the discussions on a possible ceasefire. On Thursday, Russia and Ukraine failed to reach an agreement or strike a deal to protect civilians.

Actions to watch:

Deutsche Bank’s investor update looked credible and its shares were oversold, Citi said, raising its sell recommendation to neutral.

The German bank provided details on its performance in the first two months of 2022, showing that the year is off to a good start, even taking into account that the first quarter is always more seasonal, she said. declared. Citi is updating its EPS estimates of 4% to 6% accordingly.

However, Deutsche’s new targets for 2025 suggest that any future improvement in profitability depends more on revenue growth than cost savings, meaning it depends more on external macroeconomic factors, Citi said. The targets seem overly optimistic, but the current stock price no longer warrants a sell rating, Citi said.

Brunello Cucinelli’s outlook is brighter than many luxury peers, Jefferies said after 2021 results. The Italian company, known for its cashmere products, had already released stronger-than-expected Q4 numbers , and this momentum is expected to continue in 2022, with Cucinelli guiding 12% revenue growth.

Visibility on this is strong, Jefferies said, with 1Q looking good, the spring/summer collection now in stores, and fall/winter orders strong.

The company is relatively overexposed to Russia, but the broader impact of the Ukraine crisis is not a concern for the brand, says Jefferies. The bank has a holding rating and a target price of EUR 60 on the security.

Sales momentum at Tod’s looks good and the company could reinstate a dividend next year, Jefferies said after the Italian luxury goods company’s 2021 results Thursday evening.

Revenue for the first two months of 2022 is above double digits on the year, continuing the momentum of late 2021, Jefferies said, noting that Tod’s benefits from low exposure to Russia.

Management is comfortable with the current consensus for 2022, including sales growth and margin expansion, the bank said. If the company makes a net profit for the year after an additional, albeit more limited, loss in 2021, a dividend could be paid in 2023 after two years without one, Jefferies said.

Leonardo’s cash forecast is strong, Citi analysts said. The Italian defense company achieved a turnover of 14.5 to 15 billion euros for 2022 and an Ebita of 1.18 to 1.22 billion euros.

Consensus opinions are at the high end of the indicated ranges, but Leonardo tends to deliver at the high end of its guidance, Citi said. However, its free cash flow forecast of €500 million for 2022 is higher than the consensus forecast of €337 million, and Leonardo has also confirmed its intention to generate €3 billion of cash on the 2021-2025 period, Citi said.

“We think equities will be up – equities look cheap if cash comes in and the 2022 cash forecast and reconfirmation of long-term cash generation boosts the credibility they will have.”

EssilorLuxottica said last year’s revenue and profit exceeded pre-pandemic levels, as the eyewear group confirmed its goal of mid-single-digit annual revenue growth through 2026. analyst comments here [https://newsplus.wsj.com/search/realtime/company/?searchParts=[{%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:EL.FR%22,%22c%22:%22FR:EL%22,%22n%22:%22EssilorLuxottica%20S.A.%22,%22cs%22:%22STOCK/FR/XPAR/EL%22,%22ds%22:%22EL.FR%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].

Economic overview:

The European Central Bank’s decision to accelerate the reduction in bond purchases shows that it is more concerned about soaring inflation than the likely economic damage from the war in Ukraine, asset managers say. Read a selection of asset manager reviews here.

Generali Investments is more cautious about eurozone growth this year than the ECB, predicting GDP growth of 2.2% in 2022, well below ECB expectations. Incorporating an initial assessment of the implications of the war in Ukraine, the ECB lowered its projection for GDP growth to 3.7% in 2022 from the previous forecast of 4.2%.

Generali Investments continues to see only one interest rate hike by the ECB this year in December, “but recognize that the risk has again shifted to two hikes this year.”

US markets:

Stock futures wobbled and oil prices surged, prolonging market volatility as investors assessed developments in the war in Ukraine.

Futures on major U.S. indices struggled to find direction early on Friday and swung between small gains and losses. All three indices are on track for weekly losses of 1.3% or more.

President Biden is expected to announce on Friday that the United States will join key allies and the European Union in calling to revoke normal trade relations with Russia. European Union leaders have said they are ready to act quickly with new sanctions.

On Thursday, the Securities and Exchange Commission tentatively named five New York-listed Chinese companies, including Yum China Holdings and BeiGene, as companies whose audit working papers could not be inspected by US regulators. This prompted a sharp sell-off in US-listed Chinese stocks on Thursday, with the Nasdaq Golden Dragon China Index falling 10%.

Forex:

As Russia’s invasion of Ukraine continues and concerns grow over rising inflation and slowing growth, the dollar remains a currency that ticks many boxes for investors, said ING analysts in a note.

Investors are likely to prefer currencies where central banks seem ready to tighten monetary policy; which are less exposed to global growth; supported by commodity exports; and have fewer ties to Eastern Europe.

That suggests a positive outlook for the dollar, especially if the Fed “continues tightening at a time when global growth forecasts are being revised down,” ING said. The DXY Dollar Index was up 0.1% and ING expects it could hit 100 next week.

The ECB’s decision on Thursday to signal that it may end its asset purchase program in the third quarter should support the euro over the medium term, but not for now, MUFG Bank said.

Developments related to the Russian-Ukrainian conflict and what it means for the eurozone economy will be the near-term driver for the euro for now, MUFG said in a research note. “In this sense, the short-term direction of the euro remains downside.”

The Russian ruble will struggle to recover as restrictions on Russian trade have led to the loss of many supply chains, putting pressure on the economy, Commerzbank said.

The Russian economy will struggle to replace the loss of imports with its own products, at least in sufficient quantity, quality and efficiency, Commerzbank said in a research note.

This alone “justifies that the ruble does not return to levels close to previous levels on a sustainable basis,” the German bank said. USD/RUB fell 12.9% to 116.225 but is up nearly 43% since its close on February 23, the day before Russia launched a full-scale invasion of Ukraine .

Britain’s economy grew more than expected in January, but the outlook has since deteriorated due to the Russian-Ukrainian conflict, so scope for sterling appreciation remains limited, MUFG Bank said.

“Now is probably not the time to trade relatively positive macroeconomic developments in Europe,” MUFG said in a research note. Friday’s data showed Britain’s economy grew 0.8% in January from the previous month, recovering from the impact of the spread of Omicron. Economists polled by the WSJ had expected the economy to grow 0.2%.

Obligations :

Yields on eurozone government bonds were little changed after Thursday’s bond sell-off, triggered by the ECB’s decision to accelerate its move towards monetary policy normalization. Analysts at Danske Bank continue to expect the ECB to end its quantitative easing in July, implying the possibility of an interest rate hike in September, they said.

Nevertheless, they stick to their view that the ECB will raise the deposit rate in December.

The greater clarity on future interest rate policy provided by the ECB is likely to lead to an easing of the extreme volatility in bond markets in recent weeks, Lazard Asset Management said.

“Recent speculation that the war in Ukraine could delay the expected change in monetary policy direction has been invalidated by a significant increase in inflation expectations and the need to respond to it.”

Safeguarding price stability remains the top priority, Lazard said, adding that the inflationary consequences of the war are not even fully reflected in the ECB’s new inflation forecast.

(MORE TO BE FOLLOWED) Dow Jones Newswires

March 11, 2022 06:05 ET (11:05 GMT)

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Felix J. Dixon