After last night’s laying down of the gauntlet by Russian President Vladimir Putin, and his recognition of the sovereignty of the disputed Luhansk and Donbas regions of Ukraine, markets in Europe opened sharply lower, as Putin ordered his troops into the region.
These declines rather surprisingly proved fairly short-lived, with the lack of follow through on the downside appearing to speak to a reluctance on the part of Western leaders to call last night’s move an outright invasion, as well as go all in, on a full range of sanctions.
The verbal gymnastics and procrastination are no better illustrated with German Chancellor Olaf Scholz saying that the Nord Stream 2 pipeline can’t be certified for operation at this time, which while welcome, and is rightly being lauded as the right thing to do, does leave room for a retreat if the situation were to change, which seems unlikely. The weak nature of the sanctions announced by the UK government merely added to the recovery in stock markets.
While all of this might be welcome news for markets in the short term, it is more likely that the piecemeal nature of any sanctions could embolden Putin further down the line. Putin has already stated that he doesn’t recognise Ukraine’s current borders, which suggests that he won’t stop until all of Ukraine is reabsorbed inside Russia’s sphere of influence.
The FTSE100 has led the recovery off the lows of the day with the energy sector leading the gains, as crude oil prices moved closer to $100 a barrel, with Shell and BP outperforming.
Russian miners Evraz and Polymetal have rebounded strongly after initially opening sharply lower, as the prospect of a full-scale set of sanctions on them diminished in the short term.
Volkswagen shares have surged on reports that it is looking to IPO its Porsche brand, although no firm decision has yet been taken. The timing seems curious given the current wave of uncertainty rippling through markets which means that VW might experience some difficulty in obtaining maximum value, although as we’ve seen with other luxury brands, these do appear to be recession proof. The argument for spinning Porsche off has been that it would be worth more as a stand-alone business, while also freeing up VW to invest in its own electric car transition.
Holiday Inn owner IHG has seen its shares move higher after reporting full year results in line with expectations. Full year total revenues rose by 21% to $2.9bn, with operating profits coming in at $494m, a big improvement on the $153m loss last year. CEO Keith Barr said that trading activity has continued to improve over the year with RevPAR starting to approach 2019 levels in Q4. The IHG board also took the decision to reinstate the dividend saying they would pay 85.9c per share.
Medical equipment maker Smith and Nephew has seen full year operating profits double over the last 12 months, posting a 14.3% rise in revenues to $5.21bn, with the main drivers being in Sports Medicine. Operating margins have also seen a big improvement rising from 6.5% to 11.4%.
HSBC’s full year results have seen the bank post reported profits before tax of $18.9bn, a decent increase from last year, with the UK based banking unit outperforming with annual profits of $4.8bn, adding another $1.2bn in Q4. The bank’s Asia operations were the main area of profitability with $12.2bn, with the bank announcing a $1bn share buyback as well as an $0.18c a share dividend.
The Q4 performance was slightly disappointing when compared to Q3, with reported profits after tax coming in at $2bn, less than half of what they were in Q3. One reason for this was a $500m charge in respect of recent developments in China’s real estate sector.
The bank also cited weaker growth prospects in Asia during Q1, and this appears to be weighing on the share price today, although it should be noted that the shares are still up over 40% from the lows last September.
Hargreaves Lansdown shares have plunged after reporting a 28% decline in new business in H1, to £2.32bn, while profits before tax fell 20% to £151.2m. While some of this can be put down to the tough comparatives from the same period a year ago, they also point to a much tougher environment.
US markets returned from their long weekend, opening slightly lower as they played catch-up with yesterday’s decline in European markets, however downside has been fairly limited with the latest manufacturing and services PMI numbers for February showing a marked improvement from the slowdown in January.
Home Depot Q4 numbers, showed Q4 sales of $35.7bn, a rise of 10.7%, as the retailer posted record annual sales of $150bn over the last 12 months. Same store sales in Q4 rose by 8.1%, while profits came in at $3.21c a share. The company’s Q1 forecasts were more modest with management saying that they expected profit and sales growth to moderate, as the sector looks to contain rising costs against a consumer which may start to rein back its spending. Operating margins are expected to remain flat.
Sports betting company DraftKings has seen its share price continue to slide after Friday’s big fall, after finding itself on the end of a broker downgrade from Wells Fargo, and widespread scepticism about its prospects.
Coinbase has slipped back after bitcoin dropped below the $40k level yesterday.
Amongst the best performing currencies, we’re seeing the Norwegian Krone outperform, on the back of the rise in oil and gas prices.
The pound has underperformed, despite Bank of England deputy governor Dave Ramsden saying that he expects to see further tightening in the months ahead. He was one of the MPC members who voted for a 50bps rate hike earlier this month, and appears to suggest that while any decision on further hikes is finely balanced, he probably hasn’t changed his mind on further tightening in the short term. He did, however, push back on market expectations of faster increases, although we can still expect to see another 25bps when the MPC meets on March 17th.
The haven currencies of the Swiss franc and Japanese yen have both slipped back as equity markets have recovered throughout the day.
Gold prices initially jumped higher in early trade moving above $1,900 an ounce and to their highest levels since November 2020. The improvement in sentiment as the day has progressed has since seen prices slip back below $1,900 an ounce.
We’ve seen oil prices move to their highest levels in over 7 years today in the wake of last night’s events in Russia and Ukraine, with Brent crude oil prices briefly pushing above $99 a barrel, before slipping back off their highs. The lack of follow-through, or escalation on the part of Western leaders appears to have played a part in today's pullback from the peaks.
The situation between Russia and Ukraine continues to deteriorate, with yesterday’s move by President Putin to recognise by proxy some breakaway states in the east of the former Soviet republic spiking renewed concern across markets. Dollar Rouble has advanced to levels not seen since the early days of the pandemic and one day vol has powered higher too, reaching 49% on the pair, up from a monthly print of 24%.
Commodities are also in the scope of the Russian situation, and it’s not just oil and gas. Ukraine is the world’s 7th largest exporter of wheat so concerns over supply chain disruption here are driving global benchmark prices, too. On Monday, one-day vol sat at 47%, up from a monthly reading of 38%.
Those concerns over potential disruption to gas supplies are hitting equity indices, with major markets all trading in the red. In terms of volatility yesterday, this was particularly pronounced in European markets, with the German 40 being a notable outlier here. One day vol hit 41% up from 25% on the month.
Perhaps no surprise then that a Russian mining firm finds itself on the list for equity price action, with Polymetal being in focus. Shares are now almost 15% lower than last week’s highs again with concern that the company could find it difficult to do business under any retaliatory sanctions. One day vol hit 134% up from 63% on the month.
Rounding out with cryptos and activity is returning here after last week’s lull. Notable on today’s list is Yearn, which is a token that runs a yield optimization platform around the defi ecosystem. One day vol advanced to almost 109% up from a monthly reading of 87%.
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