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European Morning Briefing: Stocks to Open Higher, Oil Rises as Russian Troops Close in on Kyiv

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Opening Call: 

A late rally on Wall Street could propel European stocks higher early Friday, but investors should brace themselves for volatility as U.S. stock futures fall amid Ukraine invasion jitters. The dollar and bond yields weakened, but oil and gold continued their march higher.


European stocks futures were pointing higher early Friday, following a late rally on Wall Street that sent stocks closing higher during the regular trading session despite market jitters caused by the Russian invasion of Ukraine.

Markets remain volatile and U.S. stock-index futures fell in volatile trading as Russia pressed its invasion of Ukraine to the outskirts of the capital Friday after unleashing airstrikes on cities and military bases and sending in troops and tanks from three sides in an attack that could rewrite the global post-Cold War security order.

Explosions sounded before dawn in Kyiv as Western leaders scheduled an emergency meeting and Ukraine's president pleaded for international help. The nature of the explosions was not immediately clear, but the blasts came amid signs that the capital and largest Ukrainian city was increasingly threatened following a day of fighting that left more than 100 Ukrainians dead.

Market Insight:

Russia's invasion of Ukraine will likely have global central banks recalibrating their policy outlooks, said Franklin Templeton. Markets are entering uncharted territory in terms of the implications of a war on Europe's borders, it said.

The conflict between Ukraine and Russia could draw in other countries and NATO, or the war could be short, but the occupation long, it added.

In the coming days and weeks, investors will be weighing a range of topics, including the implications for hard and soft commodities, and whether the current global inflationary wave will give way to deflation, as global demand weakens in a prolonged conflict scenario, FT added.

Due to the latest events in the Russia-Ukraine conflict, Oxford Economics expects higher European gas, oil and food prices over the medium term. The economic research firm also expects more financial market disruption and tougher European Union and U.S. sanctions on Russia.

"Higher inflation is the main transmission channel for a weaker economic outlook," Oxford Economics said.

The conflict and all its spillover effects leads Oxford Economics to cut its global GDP growth forecast by 0.2 percentage points in 2022 and 0.1 percentage point in 2023, reducing its global GDP growth estimates to 3.8% this year and 3.4% in 2023.

While the shock of aggressive military action in Europe has rattled equity and commodity markets, Russia has limited global significance apart from energy, said Bill Evans, Westpac chief economist.

Its economy isn't much larger than Australia's, with a limited role in global supply chains, and representing around 0.1% of all sales across S&P500 companies, he said.

Crucially, sanctions on Russian financial activities won't include energy payments as Russia controls around 8% of global oil production, including 25% of the European market and 35% of European gas. Eliminating such supply in energy markets that's already stretched with perilously low inventory levels would put enormous upward pressure on crude prices, Evans added.

Stocks to watch:

International Consolidated Airlines looks likely to report an upturn in fourth-quarter traffic at full-year results Friday, UBS said. While 3Q traffic was about 43% of the same period in 2019, UBS said it expects an improvement in the final quarter of the year.

It also forecasts 4Q revenues of about EUR3.5 billion, versus the previous year's EUR1.2B and 3Q's total of EUR2.7B, and a pretax loss before interest of EUR306 million against a loss of EUR4.2B a year ago. Still, the shares already reflect market expectations that 2022 is likely to be better than last year, UBS says

Volkswagen on Thursday said its management board decided to enter into a framework agreement and "examine on this basis the feasibility of a possible IPO of Dr. Ing. h.c. F. Porsche AG."

Porsche Automobil Holding SE said its executive board will "further examine and generally support" the feasibility of a potential IPO. Volkswagen said the framework agreement would see the share capital of Porsche AG split into 50% preferred shares and 50% ordinary shares, with Porsche Automobil Holding SE getting 25% plus one share of the ordinary shares.

Porsche Automobil Holding said, "The actual feasibility of an IPO depends on a number of different parameters as well as general market conditions," and added, "No final decisions have been made."


The dollar was weaker in early trading. Elliot Wave's Murray Gunn told WSJ the geopolitical tension favors the USD. "Given that the vast majority of global debt is denominated in US dollars, periods of 'risk-off' like this generally result in a scramble for dollars." He added the Japanese currency is also a potential save haven "given Japan's domestic macroeconomic bias." Gunn expects the yen to strengthen for the time being.

Asian currencies mostly strengthen against the dollar as there is some recovery in risk appetite in the wake of Wall Street's gains overnight and with most regional equity markets advancing in early trade.

However any further risks related to the Russia-Ukraine conflict will likely be detrimental for Asia ex-Japan currencies, and there could be potential for weakness in today's session, MUFG Bank said.


The yield on the benchmark 10-year Treasury note was spotted at 1.962% early Friday compared to 1.969% at Thursday's session.

"With the Fed already being perceived as 'behind the curve,' we doubt these events will stay the Fed's hand next month," BMO said. But given the economic risks and volatility, the war "will at the very least, likely temper some of the most aggressive calls on the Fed," such as a 50 basis point rate increase, according to BMO.


Oil rose in Asian trade, as Russia's invasion of Ukraine further weighs on a market already suffering from supply constraints and robust demand, ANZ said.

"Oil markets are particularly vulnerable to supply shocks given global oil stockpiles are at seven-year lows and as OPEC+ spare oil capacity has come under question due to disappointing OPEC+ supply growth," CBA said.

Meanwhile, developments in Ukraine following Russia's invasion will continue to be closely watched.

Europe's natural gas market, still licking its wounds from earlier this winter when prices soared amid weak wind production and the phasing out of coal, is in crisis mode again as gas supplier Russia invades Ukraine.

"European natural gas prices are up 56% on the day to over $45/MCF which is over ten times the price in the U.S. at around $4.49/MCF," said Infracap founder and CEO Jay Hatfield, who says consumers can't afford that rise so it'll have to be absorbed by governments.

"In addition, it graphically demonstrates that Europe has failed in its efforts to rapidly transition away from all hydrocarbons instead of just focusing on coal as COP26 recommended."


Gold was higher in early Asia trade as Russia's invasion of Ukraine stokes demand for haven assets. The precious metal could stay in considerable demand as the conflict unfolds in Ukraine, Commerzbank said.

Meanwhile, UOB says that the rising geopolitical tension adds to the chances of a "further near term spike" in the gold price.

Aluminum edged lower in early Asian trade as supply disruption fears ease. The metal gained in the previous session amid concerns that Russia-Ukraine tensions could threaten supply, but prices eased after the Biden administration said it will hold off on imposing sanctions on the Russian metals sector, ANZ said.

Iron ore was lower in early trade amid the intervention by Chinese regulators to cool prices, ANZ said. China's National Development and Reform Commission on Wednesday said it will shorten the free storage period of iron ore and raise the costs of hoarding at ports to avoid excess stockpiling. The most-traded May iron-ore contract on the Dalian Commodity Exchange fell 1.3%.


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February 25, 2022 01:39 ET (06:39 GMT)

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