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EUROPEAN MIDDAY BRIEFING - Stocks Rise, Oil Prices Rebound



European stocks rose with investors closely watching news of the Russian war on Ukraine and reacting to oil-price swings.

Brent crude futures, the international benchmark, advanced 2.2%. Oil prices are hovering near their highest level in years, despite retreating in recent days.

The prospect of a boost in supply has helped assuage some fears about a supply crunch. 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 at $115+ on any negative headlines, it's just that sort of market," said Jeffrey Halley, an analyst at broker Oanda. "Staying on the sidelines as oil markets become increasingly irrational will allow you to enjoy your weekend."

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

Fast-changing sanctions imposed on Russia by the West have clouded traders' ability to forecast how trade and supply chains might be disrupted. Investors have closely monitored discussions about a possible cease-fire. On Thursday, Russia and Ukraine failed to gain traction on an agreement or reach a deal to protect civilians.

Stocks to watch:

Deutsche Bank's investor update looked credible and its shares have been oversold, Citi said, upgrading its recommendation to neutral from sell.

The German bank provided detail on its performance during the first two months of 2022, which shows the year got off to a strong start, even accounting for the fact that 1Q is always seasonally stronger, it said. Citi upgrades its EPS estimates by 4%-6% accordingly.

However, Deutsche's new 2025 targets suggest that any future profitability improvements depend more on revenue growth than cost savings, meaning they hang more on external macroeconomic factors, Citi said. The targets look overly optimistic, but the stock's current price no longer justifies a sell rating, Citi said.


Brunello Cucinelli's outlook is clearer than many luxury-sector peers, Jefferies said following 2021 results. The Italian company, known for its cashmere products, had already prereleased stronger-than-expected 4Q figures, and this momentum should continue into 2022, with Cucinelli guiding for 12% top-line growth.

The visibility on this is strong, Jefferies said, with 1Q looking good, the Spring/Summer collection now in stores and Fall/Winter orders solid.

The company is meanwhile overexposed to Russia, relatively, but the wider impact from the Ukraine crisis isn't a concern for the brand, Jefferies argues. The bank has a hold rating and a EUR60 target price on the stock.


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 late Thursday.

Revenue in the first two months of 2022 are double-digits higher on year, continuing the impetus had at the end of 2021, Jefferies says, noting that Tod's benefits from low exposure to Russia.

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


Leonardo's cash guidance is strong, Citi analysts said. The Italian defense company guided for 2022 sales of EUR14.5 billion-EUR15 billion and Ebita of EUR1.18 billion-EUR1.22 billion.

Consensus views are at the top end of the indicated ranges, but Leonardo tends to deliver at the top end of its guidance, Citi said. However, its EUR500 million 2022 free operating cash flow guidance is above consensus views of EUR337 million, and Leonardo also confirmed plans to generate EUR3 billion cash over 2021-25, Citi said.

"We believe the shares will be up--the shares look cheap if the cash comes through and the 2022 cash guidance and reconfirmation of long term cash generation increase the credibility that it will."

EssilorLuxottica said revenue and earnings last year outstripped pre-pandemic levels, as the eyewear group confirmed its target of annual revenue growth in the mid-single digits through 2026. Track the analysts' comments here [[{%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 Insight:

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


Generali Investments is more cautious about the eurozone's growth this year than the ECB, forecasting GDP will grow 2.2% in 2022, well below the ECB's expectation. Incorporating a first assessment of the implications of the war in Ukraine, the ECB downgraded its GDP growth projection to 3.7% in 2022 from the previous forecast of 4.2%.

Generali Investments continues to see only one interest rate rise by the ECB this year in December, "but acknowledge that the risk shiftted again towards two hikes this year."

U.S. Markets:

Stock futures wavered and oil prices jumped, extending a volatile stretch for markets as investors assessed developments from the war in Ukraine.

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

President Biden is expected to announce Friday that the U.S. will join major allies and the European Union in calling to revoke normal trade relations with Russia. European Union leaders have said they are ready to move quickly with further sanctions.

On Thursday, the Securities and Exchange Commission provisionally named five New York-listed Chinese companies, including Yum China Holdings and BeiGene, as firms whose audit working papers couldn't be inspected by U.S. regulators. That prompted a sharp selloff in U.S.-listed Chinese stocks Thursday, with the Nasdaq Golden Dragon China Index tumbling 10%.


As Russia's invasion of Ukraine continues and concerns increase about rising inflation and slowing growth, the dollar remains a currency which ticks many boxes for investors, ING analysts said in a note.

Investors will likely prefer currencies where central banks look prepared to tighten monetary policy; which are less exposed to global growth; backed by commodity exports; and have fewer links to eastern Europe.

This suggests a positive outlook for the dollar, especially if the Fed "pushes ahead with tightening at a time when global growth forecasts are being revised lower," ING said. The DXY dollar index rose 0.1% and ING expects it could rise to 100 next week.


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

The developments in relation to the Russia-Ukraine conflict and what that means for the eurozone economy will be the euro's near-term driver for now, MUFG said in a research note. "In that sense, the near-term direction for the euro remains to the downside."


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

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

That alone "justifies the ruble not returning to anywhere close to previous levels on a sustainable basis again," the German bank said. USD/RUB fell 12.9% to 116.225 but is up nearly 43% since its closing price on February 23, the day before Russia launched a full-scale invasion of Ukraine.


The U.K. economy grew by more than expected in January but the outlook has since deteriorated due to the Russia-Ukraine conflict so the scope for sterling to rise remains limited, said MUFG Bank.

"Now is probably not the time to trade relative positive macro developments in Europe," MUFG said in a research note. Data on Friday showed the U.K. economy expanded 0.8% in January compared to a month earlier, recovering from the impact of the spread of Omicron. Economists polled by the WSJ expected the economy to grow 0.2%.


Eurozone government bond yields were little changed after Thursday's bond selloff, triggered by the ECB's decision to accelerate its move toward monetary policy normalization. Danske Bank's analysts continue to expect the ECB to end its quantitative easing in July, which implies the possibility of an interest rate rise in September, they said.

Nonetheless, 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, said Lazard Asset Management.

"Recent speculation that the war in Ukraine could postpone the overdue change of course in monetary policy has been invalidated by a significant increase in the inflation forecast and the need to respond to this."

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


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

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