LIVE MARKETS Actions to hedge inflation

  • European stocks down 0.1%
  • British inflation at its highest for nearly 30 years
  • The Ukrainian crisis still at the center of concerns
  • US stock futures flat

February 16 – Welcome home to real-time market coverage from Reuters reporters. You can share your thoughts with us at [email protected]

STOCKS TO COVER INFLATION (1301 GMT)

UK consumer prices rose at the fastest annual rate in 30 years last month and inflation is expected to continue to rise above 7% in April.

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Amid the prospect of even higher inflation, investors sought inflation-linked assets. Read more

AJ Bell suggests choosing equities as a long-term inflation hedge.

“So many people will naturally look to the stock market to help fight inflation. That certainly makes a lot of sense, because companies at least have the ability to pass on price increases to consumers,” says Laith Khalaf, responsible for investment analysis. at AJ Bell.

“During the year, there is absolutely no guarantee that an investment in the stock market will beat inflation. But over the long term, investing in stocks is one of savers’ main defenses against rising prices. .”

Inflation in the UK

(Joice Alves)

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GEOPOLITICAL TENSIONS WEIGHT OVER EUROPEAN BANKS (12:20 GMT)

As elevated geopolitical tensions continue to weigh on lenders, European banks (.SX7P) are down more than 1% against an almost flat pan-European benchmark (.STOXX).

Although banks are the biggest losers in European sectors today, UBS analysts remain bullish on them as the sector is set to benefit from three tailwinds: higher rates, strong earnings momentum from and growing returns for shareholders, say UBS analysts.

For the latter, cash dividends and share buybacks stand out as supporting the sector with capital levels at record highs according to UBS.

“This is supported by recent comments from regulators emphasizing that they do not intend to take a restrictive stance in terms of returning capital to shareholders,” they say, adding that the sector offers a return of attractive dividend of 5%.

Despite recent turbulence, banks continue to outperform the STOXX 600 this year and are up 12% year-to-date against a 4% decline in the benchmark.

European banks

(Lucy Raitano)

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A LIST OF POTENTIAL SANCTIONS AGAINST RUSSIA (1117 GMT)

European stocks have rallied since Monday’s tumble on hopes of a de-escalation in tensions between Russia and Ukraine.

De-escalation is the most likely scenario for UniCredit CEE Chief Economist Dan Bucsa, but targeted operations and land invasion are not completely ruled out.

If he is right and tensions ease, the Russian economy could grow by 2-2.5% in 2023 and 2024, the Central Bank of Russia could start cutting rates in 2022, while the ruble could back close to 71 against the US dollar, he said. .

Bucsa thinks the tougher measures against banks and progressive sanctions on oil exports are unlikely to be implemented. A ban on using the Swift financial messaging system would be detrimental for up to a year, but would not be a game changer.

But if Russia decides to invade Ukraine, “the peak-to-trough GDP drop could be as much as 4%, the CBR could go up to around 15%, and the RUB could drop up to 30%,” adds- he.

If tensions escalate into a scenario of targeted operations, sanctions could target Russian investment vehicles, companies and individuals. This could include a ban on secondary market transactions with federal OFZ loans by US investors and a ban on the Nord Stream 2 energy pipeline.

In the worst case, a ground invasion scenario, a ban on using Swift could be added to the sanctions list.

The most significant economic risk in the event of a conflict in Ukraine is the fact that neighboring CEE countries depend on imports of Russian natural gas and have gas stocks that cover less than two months of consumption, says Bucsa.

“CEE GDP growth could slow to 1.7pp in 2022,” he notes.

(Joice Alves)

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EUROPE INC CONTINUES TO BEAT, ANALYSTS TAKE ADVICE (0943 GMT)

The fourth quarter earnings season in Europe is going through its busiest weeks this month and it looks like companies in the region are continuing to put in strong numbers.

According to the latest weekly data from Refinitiv IBES, 62.5% of STOXX 600 companies that have already reported have exceeded market expectations, down from 52% in a typical quarter.

And analysts are taking note.

They now estimate Europe Inc’s profits rose 58.6% to 116.5 billion euros in the fourth quarter, up more than 2 percentage points from last week’s estimates.

And revenues are now up more than 20%.

Nine of the ten STOXX sectors expect improved earnings. Energy has the highest earnings growth rate at 385.5%, while real estate is the weakest at -2.7%, per Refinitiv.

instantaneous

More reading here:

European Benefits: 2022 Upgrades Coming? Read more

BofA predicts 10% rise in profits for European banks Read more

A bit of optimism on earnings Read more

(Danilo Masoni)

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STOXX UP, PROFITS PULL TOP MOVEMENTS (0910 GMT)

European stocks opened higher on Wednesday as the region follows in the footsteps of Tuesday’s bullish US close amid easing tensions from a looming conflict between Ukraine and Russia.

The regional benchmark STOXX 600 (.STOXX) is up 0.4%, with nearly all sectors in positive territory and earnings releases driving the biggest moves in either direction. Telecoms was a weak point, down 0.8%.

Swedish medical technology group Vitrolife lost 10% after a nearly 70% drop in net profit in the fourth quarter. Swiss elevator and escalator maker Schindler is down 4% after fourth-quarter financial results.

On the other hand, French lottery operator La Française des Jeux gained 6.6% after raising its revenue targets.

instantaneous

(Lucy Raitano)

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WAR, PEACE, INFLATION (0806 GMT)

Feb. 16 was when Russia was supposed to invade Ukraine, the White House says, but signals from Moscow that it was withdrawing some troops massed on Ukraine’s borders lifted Wall Street on Tuesday and fueled a sell-off. Treasury bills and German Bunds.

Market gains extend into Wednesday – Japan’s Nikkei rose 2.2% and European stocks open higher, but US stock futures are showing further signs of caution.

There are, of course, other ways of waging war; Ukraine has blamed Russia for a series of cyberattacks that hit it on Tuesday. And note that the Russian parliament has asked President Putin to recognize two breakaway regions in eastern Ukraine backed by Moscow as independent.

Economic data releases and central banks are also occupying the markets. Those hoping for signs of a spike in inflation will have been dismayed by the latest UK and US readings. UK consumer prices rose at the fastest annual rate in nearly 30 years last month, up slightly from December

It comes a day after U.S. data on Tuesday showed core factory gate inflation – the cost to producers after cutting out food and energy – posted its biggest gain in a year.

Inflation

The prospect of aggressive, aggressive rate hikes has flattened bond curves considerably, with the spread between UK two-year and 10-year gilt yields turning almost negative – the so-called inversion that often portends an economic meltdown.

The U.S. Treasury yield curve steepened on Tuesday as receding war fears pushed 10-year yields higher, but a day earlier it was the narrowest since mid-2020. For some, the state of the curve is a sign that central banks have fallen behind in their fight against inflation and need to act faster with policy tightening to catch up.

All eyes are therefore now on the minutes of the last meeting of the US Federal Reserve. They could show whether policymakers will lean towards a half-point bigger rate hike at its March meeting, or whether they favor an acceleration in the sale of Fed bond holdings to tighten conditions. financial.

Curve 3 months, 10 years

Key developments that should further guide markets on Wednesday:

-Inflation in China slows, giving way to policy easing Read more

– ECB’s Schnabel and Villeroy consider the end of the stimulus plan

-NATO defense ministers gather in Brussels for a two-day summit

-Retail sales/industrial production/inventories in the United States

-20-Year U.S. Treasury Bond Auction

– Minutes of the meeting of January 25 and 26

-US profits: Kraft Heinz, Cisco, AIG, Nvidia, Marathon

European profits: Ahold, Alcom, Clariant, EDP, Standard Chartered, Heineken, Carrefour, Reckit Benckiser

(Sujata Rao)

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EUROPE SEES SUSTAINED GAINS, Ukraine still in focus (0724 GMT)

European stocks are expected to edge higher on Tuesday’s gains following a possible de-escalation of tensions over Ukraine, although investors remain cautious about possible developments in the crisis.

Futures on the Euro STOXX 50 index last rose 0.6%, while contracts on the FTSE 100 gained 0.2% after data showed consumer prices at UK grew at the fastest annual rate in nearly 30 years last month, with inflation hitting 5.5%. Read more

US futures meanwhile eased slightly ahead of Federal Reserve minutes later on Wednesday, which could shape expectations for how quickly the central bank will tighten policy.

Kiev appeared to blame Russia for a cyberattack on Tuesday as US President Joe Biden warned that more than 150,000 Russian troops were still massed near Ukraine’s borders. Read more

(Danilo Masoni)

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