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EMEA Morning Briefing: Shares to Tumble as Putin Deploys Troops in Ukraine

MARKET WRAPS

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Opening Call:

European stocks face a fresh selloff after Russia ordered troops into Ukraine, with Dow futures nearly 500 points lower and most Asian stock benchmarks down 1-3%. Haven assets were in demand, with the dollar and yen higher, Brent touching $97 and gold at highs not seen in more than a year.

Equities:

European and U.S. stock-index futures headed sharply lower Tuesday as Vladimir Putin ordered the deployment of troops to separatist areas within Ukraine, after recognizing their independence, a move that some fear puts Ukraine and Russia one step closer to military conflict.

The White House said Joe Biden will issue an executive order that "will prohibit new investment, trade, and financing by U.S. persons" in those areas.

Meanwhile, officials from the European Union referred to Putin's latest moves, including the recognition of the independence of the Russian separatist Donetsk and Luhansk regions' independence, as "a blatant violation of international law."

Read: Putin Orders Deployment of Troops to Breakaway Regions in Ukraine

In the Asia-Pacific region Tuesday, benchmark indexes in Australia, South Korea, Japan and Hong Kong all retreated, declining between about 1% and 3%.

Forex:

Safe-havens such as the dollar and the yen strengthened against most G-10 currencies on "risk off" sentiment driven by potential sanctions against Moscow and a diplomatic breakdown rather than outright war in Ukraine, said Mizuho Bank.

It said USD's safe-haven allure has been measured, while JPY and CHF were preferred.

Other Currency News:

The Bank of England's last policy decision boosted speculative bets on sterling rising in the week to Feb. 15, said Rabobank, citing the latest positioning data from the Commodity Futures Trading Commission.

The CFTC data showed long positions exceeded short positions for the first time since November 2021. The move came after the "more hawkish than expected takeaway" from the BOE's meeting in early February, which prompted markets to price in more rate hikes in the year ahead, said Rabobank.

"That said, some investors are concerned about the spike in the cost of living in the U.K. and poorer medium-term growth prospects which could arguably limit the amount of rate hikes the BOE can implement."

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Eastern European currencies would fall sharply if Russia invades the Ukraine, said Matteo Cominetta, senior economist at Barings Investment Institute.

It would create a headache for Eastern European central banks, which are trying to rein in inflation, Cominetta said. These central banks would need to spend foreign-exchange reserves to prop up their currencies, stabilize inflation and maintain financial stability.

"Countries with low reserves, a negative current account and energy import dependency may find it hard to do so."

Bonds:

The yield on the benchmark 10-year Treasury note dropped sharply in Asia as investors bid up the prices of haven assets.

Other Bond News:

Despite the recent widening, euro corporate bond spreads are still relatively tight, said Carmignac.

Head of Credit Pierre Verle said that given the outlook for more restrictive monetary policies, the asset manager is focusing on idiosyncratic investment situations and maintains a "prudent" positioning with a high level of hedging. This allows it to reduce market risk while focusing on returns above the benchmark its tracks, Verle said.

"Our allocation focuses on floating rates instruments, high yield bonds and issuers benefiting from inflation which allows us to have a limited duration risk."

Energy:

Energy prices, notably natural gas and crude, climbed sharply in Asia.

Brent topped $97 a barrel before edging back below the threshold. The April contract finished 2% higher on Monday, marking the largest daily gain for a front-month contract since Feb. 14. Natural gas was trading over 8% higher.

Some analysts have warned that crude oil could shoot above $100 a barrel if tensions in Ukraine erupt into full-blown war.

ANZ said oil may also be supported by signs of stronger demand following comments by Saudi Aramco that it sees signs that demand was rising.

Meanwhile, investors will be watching the negotiations that could rekindle Iran's 2015 nuclear deal, ANZ said, noting that Iran's foreign ministry spokesman said some progress has been made.

Metals:

Gold rallied to highs not seen in more than a year.

Growing political tensions between Russia and Ukraine have helped to underpin gains in precious metals. Bullion values on Thursday hit their highest levels in about eight months, but ended lower on Friday, heading into the three-day weekend, with U.S. markets closed in observance of Presidents Day.

Commerzbank says. "Until the crisis is over, or at least until there are signs of tensions easing in a lasting fashion, we believe that gold will remain in demand as a safe haven," said Commerzbank.

Aluminum and nickel prices also rose on concerns over supply disruptions that could be caused by the Russia-Ukraine crisis.

These two metals source a significant amount of global supply from Russia, leaving them exposed to disruptions if there's a full-blown invasion. Nickel has also found support on signs of strong demand from the electric vehicle battery sector, said ANZ.

   
 
 

TODAY'S TOP 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.

   
 
 

As Covid-19 Cases Wane, U.K. to Lift Remaining Curbs

LONDON-The U.K. government will lift all remaining Covid-19 restrictions in England this week, including a legal requirement that those infected with the virus self-isolate, as Prime Minister Boris Johnson looks to fully reopen the British economy and society two years after the pandemic first hit.

Mr. Johnson said Monday that with the virus on the wane, government-mandated rules are no longer necessary to stop the spread of Covid-19.

   
 
 

HSBC's Fourth-Quarter Profit More Than Tripled

HSBC Holdings PLC's fourth-quarter net profit more than tripled from a year earlier, ending 2021 with a strong earnings turnaround even as it cautioned about risks in China.

Net profit surged to $1.79 billion in the quarter from $562 million in the same period a year earlier, one of its toughest quarters since the pandemic began, the Asia-focused lender said Tuesday.

   
 
 

Putin Address Takes Swipe at U.S.-Led World Order

Russian President Vladimir Putin's combative address Monday from the Kremlin was a nearly hourlong recitation of decades worth of historical grievances and an unmistakable challenge by Moscow to the post-Cold War international order dominated by the West.

The speech, ostensibly aimed at recognizing the independence of two breakaway statelets that Russia carved from Ukraine in 2014, outlined Mr. Putin's view that Ukraine was a historical accident that the U.S. has turned into a launchpad to attack Russia.

   
 
 

Putin's Endgame: Unravel the Post-Cold War Agreements That Humiliated Russia

The world's attention is on eastern Ukraine, where Moscow's forces circle. Yet Russian President Vladimir Putin's ambitions extend far beyond. He wants to renegotiate the end of the Cold War.

Whatever follows Russia's large-scale military maneuvers, and the announcement Monday to recognize the independence of two breakaway Ukrainian regions and orders to send troops there, Mr. Putin has made clear he wants to redraw the post-Cold War security map of Europe.

   
 
 

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.

   
 
 

Write to paul.larkins@dowjones.com

   
 
 

Expected Major Events for Tuesday

06:00/FIN: Jan Labour force survey, incl unemployment

07:00/NOR: 4Q Labour Cost Index - preliminary figures

07:00/UK: Jan Public sector finances

08:00/SPN: Dec Industrial Orders & Turnover

09:00/ITA: Jan CPI

09:00/POL: Jan Agricultural prices

09:00/GER: Feb Ifo Business Climate Index

11:00/UK: Feb CBI Industrial Trends Survey

11:00/IRL: Jan WPI

13:00/POL: Jan Broad money M3

13:00/HUN: Feb Hungarian interest rate decision

14:00/BEL: Feb Business Confidence Survey

15:00/DEN: Jan Central Government Finance & Debt

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This article is a text version of a Wall Street Journal newsletter published earlier today.

 

(END) Dow Jones Newswires

February 22, 2022 00:17 ET (05:17 GMT)

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