LIVE MARKETS What next for eurozone stability

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WHAT NEXT FOR EUROZONE STABILITY (1212 GMT)

The spread between Italian and German 10-year government bond yields, a quasi-indicator of eurozone stability, is still among the hot topics being discussed after the ECB’s hawkish shift at the beginning of this month.

So, investors could use some recent forecasts from the leading investment banks on this widely watched gauge.

UBS has a year-end target at 150 bps.

JP Morgan projects the spread at 180 basis points by year-end, including a possible widening in late 2022 to reflect potential political uncertainty given expectations of a general election in Italy in the first months of 2023.

Remarks from ECB’s president Christine Lagarde suggested the ECB was comfortable on the Italian German spread levels at the time of the February meeting (140-150 bps) and hence will not be actively supporting the markets around that level, according to JP Morgan analysts.

Commerzbank turned tactically neutral with the spread at 170 bps. Still, it expects it to hit 200 bps later in the year because of “the persistent Bund richening and lingering domestic policy concerns.”

(BofA) said last week the spread would hardly widen beyond 150-170 bps in the short-term.

(Stefano Rebaudo)

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RECORD SALES BEAT SHOWS EUROPE INC HAS PRICING POWER (1100 GMT)

We’re more than halfway through the Q4 reporting season and even though Ukraine and rate hike angst has helped make for a pretty opaque price action, the numbers out of European corporate releases have actually been quite good.

One key takeaway is that results have been beating estimates across all P&L, especially on sales, which is “a sign of good corporate pricing power”, according to Morgan Stanley.

“The breadth of sales beats has narrowed but remains on track to set a new record with a net 52% of stocks currently beating on sales. Strong top-line outcomes suggest aggregate demand and corporate pricing power are very healthy,” say strategists at the U.S. investment bank.

And the focus on top line has also meant that companies missing on sales have seen particularly weak price performance.

“The negative skew is particularly strong for stocks that miss on sales estimates in the 5D post results, suggesting that there is little demand for stocks that are unable to drive good top-line trends, which makes sense in the context of sales beats being plentiful in aggregate,” the MS strategists add.

(Danilo Masoni)

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STOXX: STUCK WITHIN RANGES (0916 GMT)

European shares kicked off the week in a choppy fashion and remained well anchored within recent trading ranges as caution over Ukraine continued to keep investors on edge, even as hopes for a diplomatic solution to the crisis grew.

The pan-regional STOXX 600 (.STOXX) was last just below parity, reversing the slight opening gains after the Kremlin said that Putin and his U.S. counterpart Biden could set up a call or meeting any time but there were no concrete plans yet for a summit.

The picture across sectors was mixed too with positive travel and leisure (.SXTP) stocks offset by weaker tech (.SX8P).

(Danilo Masoni)

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PRICING FIFTY SHADES OF GREY (0739 GMT)

While the Kremlin complains about “daily” Western predictions of a Russian invasion of Ukraine, investors for their part have had no choice but to adjust to each day’s unique sabre rattling noise and assess the probability of a conflict hitting global financial markets. read more

Today’s news that U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine read more has lifted U.S. and European stocks futures and helped Asian shares pare some losses.

But as much as a swift diplomatic breakthrough to reset Europe’s security framework appears unlikely for now, so does a full-fledged confrontation between the West and Russia.

What analysts are struggling to do, is pricing how the various scenarios in between will impact a vast range of asset classes, from energy to wheat, gold, stocks, bonds and currencies to name a few. read more

At the moment, the prospect of de-escalation is moving capital away from safe havens with the euro jumping 0.4% to $1.1367 and the dollar retreating 0.36% against its rivals.

This morning also sees oil prices ease on the hope of summit over Ukraine and news of a possible nuclear deal between Iran and world powers. Still at about $93 a barrel, oil remains close to the symbolic $100 bar for the liking of many countries.

A flurry of data from France, Germany and the UK this morning will shed some light on how much of a toll inflation, tighter monetary policy and this winter’s COVID-19 Omicron wave have taken on the economic recovery.

And while European companies hoping to fund deals via bond markets are facing a sudden jump in borrowing costs, business goes on unabated with French payments company Worldline entering exclusive talks to sell its TSS terminals business to Apollo Funds (APO.N) in a deal potentially worth around 2.3 billion euros.

Key developments that should provide more direction to markets on Monday:

-Arab oil producers say OPEC+ should stick to current output agreement read more

– China’s new home prices perk up read more

– Japan’s manufacturing activity expanded at the slowest pace in five months read more

– Thai economy returns to growth in Q4 read more

– Flash PMIs for France, Germany, EU, UK

(Julien Ponthus)

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UKRAINE HOPES SET TO LIFT EUROPE (0720 GMT)

Hopes of a possible diplomatic solution to the Ukraine crisis following news that Biden an Putin agreed to meet are set to give a lift to European shares this morning with futures decisively in positive territory.

Contracts on the Euro STOXX 50 and DAX indices were last rising more than 1% and FTSE futures added 0.6%, while derivatives on U.S. benchmarks also pointed to a positive start later on Wall Street.

U.S. President Joe Biden and Russian President Vladimir Putin have agreed in principle to a summit over Ukraine, the French leader said on Monday, offering a possible path out of one of the most dangerous European crises in decades. read more

(Danilo Masoni)

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