MARKET WRAPS
Stocks:
European markets traded mostly lower as traders eye economic data and ongoing geopolitical tensions.
Investors have grappled with how Russia's war with Ukraine will put additional pressure on supply chains that are already disrupted from Covid-19. Oil prices, which remain above $100 a barrel, have added to concerns that consumers could see higher prices for energy and even products like plastic wrap or lawn fertilizer.
"Through mid-February, it was all about rising rates, and then it was all about the war, and what's concerning now is that they've combined," said Daniel Morris, chief market strategist at BNP Paribas Asset Management. "The challenge in this environment is what do you buy. You can't sit in cash. It is a 'least-bad option'-type of market."
Russia's stock market jumped in its first limited trading session since the West unveiled punishing sanctions nearly a month ago. The benchmark MOEX index added around 8%.
The increase is unlikely to be interpreted as a sign that all is well with the Russian economy. Only 33 shares out of 50 shares on the index were allowed to trade. To prevent a steep selloff, Russia's central bank banned short selling, and blocked foreigners, who make up a huge chunk of the market, from selling their shares.
The move will also help prevent the ruble from weakening, as foreign investors would likely sell their ruble-denominated shares and then move out of the ruble for the dollar or euro. Russia's currency has trimmed some of its losses against the dollar in recent sessions, trading at 97 rubles to the dollar Thursday.
Stocks to Watch:
Deutsche Lufthansa's shares have performed very strongly, and given the recent complications to its operating environment, their valuation looks less compelling, Deutsche Bank Research analyst Jaime Rowbotham said in a note.
He downgrades his recommendation on the German airline group's shares to hold from buy. "We still see a lot to like at Lufthansa--healthy balance sheet, diversified revenue streams (some with lower elasticity of demand to price) and a clear turnaround plan," Rowbotham said.
However, the outlook for European airlines has turned less positive, with the war in Ukraine pushing oil prices high and a potential squeeze on consumers' disposable income due to inflation, the analyst said, cutting his profit forecasts for Lufthansa.
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German truck maker Daimler Truck has kept its 2022 target for the industrial adjusted EBIT margin of between 7% to 9%, which is a positive surprise, particularly after some auto makers provided softer outlooks for the current year, RBC Capital Markets said.
"The company is calling for 2022 revenue of EUR45.5B-EUR47.5B versus consensus of EUR44B and most importantly confirmed the 2025 targets," the Canadian bank said.
For 2021, Daimler Truck's adjusted EBIT and free cashflow of the industrial business were below consensus, RBC says. Shares in Daimler Truck were rising on the back of the guidance and results, and are up 7.5% at EUR25.83.
Next posted above-forecast annual profits but lowered its sales and profit guidance by GBP85 million and GBP10 million respectively, following the closure of its website in Ukraine and Russia. Read the analysts' comments here [https://newsplus.wsj.com/search/realtime/company/?searchParts=[{%22t%22:%22symbol%22,%22q%22:%22djn:djnabout:NXT.LN%22,%22c%22:%22UK:NXT%22,%22n%22:%22Next%20PLC%22,%22cs%22:%22STOCK/UK/XLON/NXT%22,%22ds%22:%22NXT.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].
Read Barron's: Rising Commodity Prices Are Helping Mining Giants. Anglo American Is a Standout.
Economic Insight:
Norges Bank raised the key rate to 0.75%, as expected, on Thursday, with the new rate path suggesting seven more rate increases up until end-2023, which is "in line with markets and our view," says Nordea.
The outcome is as expected after the stellar performance of the Norwegian economy since the last monetary policy report was published in December, it says. The new rate path was adjusted upwards throughout the whole forecast period and now ends at 2.5% by end-2023.
Overall, the new rate path suggests a further three rate increases in 2022 and another four in 2023. "EUR/NOK moved up slightly - likely due to buy the rumour sell the fact," Nordea says.
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The small fall in the eurozone PMIs shows some resilience despite the war in Ukraine, but the fact that expectations plunged implies that the outlook has worsened sharply, Capital Economics said.
The survey showed that supply bottlenecks worsened due to the war in Ukraine as well as delays from China after the most recent Covid-19 outbreak, and also pointed to record high-price pressure as energy prices spiked over the month, the U.K. economic-research firm says.
"The PMIs are consistent with our below-consensus forecast for GDP growth this year of 2.8%, and above-consensus forecast for inflation of 6.0%," Capital Economics says.
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The French PMI data suggest that robust and accelerating activity in the services sector is so far offsetting a hit to production in manufacturing, Pantheon Macroeconomics said.
The composite PMI--which gauges economic activity in both the manufacturing and services sectors--increased to 56.2 in March from 55.5 the previous month, an eight-month high, according to S&P.
The data pointed to a solid rebound in the services sector after Omicron, while production in manufacturing slowed sharply due to intensifying supply-side disruptions, a trend that will be made worse by the war in Ukraine, Pantheon said. "The war is making a dent, but only a small one, for now."
Market Insight:
As the EU Council's two-day meeting starts on Thursday, Citi analysts don't expect a new joint EU borrowing program to emerge. "We do not expect a new joint EU borrowing programme to be agreed given the amount of existing available EU resources."
Only EUR54 billion of the EUR338 billion available under the Recovery and Resilience Facility have been disbursed so far, and EUR220 billion of the EUR386 billion available RRF loans haven't even been requested, they said.
Moreover, there are up to EUR350 billion of EU structural funds that could be used flexibly, Citi's analysts added.
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Vladimir Putin's request for natural-gas export payments in rubles appears designed to support the country's currency, but could end up intensifying strains in the country's balance of payments, Capital Economics said.
"The immediate consequence of any move to invoice in rubles would be to eliminate a source of foreign currency at a time that export revenues have been hit hard by sanctions."
The move is likely to accelerate the pace of import compression, squeezing domestic demand, CE said. In the long-term, the decision also accelerates Russia's strategy of reducing its use of the U.S. dollar and reinforces the idea that the country will continue to drift toward autarky, it said.
U.S. Markets:
U.S. stock futures and crude prices inched higher ahead of jobless figures and manufacturing data.
Investors monitored developments from the Russia-Ukraine war, with leaders including President Joe Biden meeting in Europe to discuss the conflict and potentially more sanctions on Russia.
Leaders from NATO are meeting amid expectations that the Western military alliance will deploy troops to countries in Central and Eastern Europe. Biden will also attend a summit of both the G-7 group of countries and the European Union, later on Thursday.
Investor attention will center on whether new sanctions on Russia, and particularly its energy exports, could be rolled out.
"It's now been one month since the Russian invasion of Ukraine began, and without a doubt it remains the most significant ongoing story in markets," said Henry Allen, an analyst at Deutsche Bank. "We'll have to wait and see what further measures might be announced today, but resistance to a full embargo on Russian oil and gas is very much present for now."
Forex:
The dollar firmed broadly on safe-haven demand as investors awaited the outcome of meetings between Joe Biden and NATO, G7 and EU leaders to discuss Russia's attack on Ukraine.
With major countries looking at reducing Europe's dependence on Russian gas, if Europe were to "walk away from" Russian oil, oil prices would likely rise further, raising concerns about further inflation and damage to economic growth, Swissquote said in a research note.
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The euro is likely to suffer further falls due to the risks posed to the eurozone economy via higher energy prices, especially given its hefty reliance on Russian energy, Commerzbank said in a research note.
"In my view, the risks remain on the downside for the euro for now," said currency strategist Antje Praefcke. "With each new sanction [against Russia], the risk of an energy price shock increases, which... would hit the EU economy and thus the euro harder," she said.
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The Japanese yen's recent weakness has helped define a new order for safe-haven currencies linked to whether they are energy importers or exporters as the Ukraine war pushes up oil and gas prices, Rabobank said.
"Measured since the start of the war in Ukraine, the best performing G10 currencies are the commodity producers with the JPY and the European currencies lagging behind," Rabobank forex strategist Jane Foley said in a note.
However, it must be stressed that the yen's losses are exacerbated by Bank of Japan's continued ultra-loose policy stance, she said. USD/JPY rises 0.4% to 121.658 after earlier hitting 121.750, its highest level since December 2015, according to FactSet.
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The Swiss franc fell after the Swiss National Bank reiterated its willingness to intervene in the forex market to counter upward pressure on the currency, which it said "remains highly valued."
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03-24-22 0655ET
