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SHORT RUSSIA, LONG DEFENCE (0844 GMT)
Equity markets remain hostage of high volatility as tensions between the West and Russia mounted over the weekend after new sanctions were imposed, but there are two trades that are playing out quite straight in early trading.
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Defence stocks across Europe are soaring after Germany announced a dramatic hike in military spending, while Russia exposed stocks are taking another heavy beating with Deutsche Boerse suspending trading of Russian issuers.
Also in the mix are continued gains in renewable energy stocks on bets Europe could accelerate its transition to renewable sources.
(Danilo Masoni)
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STICKING TO BANKS WHEN LOOKING 1 MONTH AHEAD (0750 GMT)
Going full-on European banks was a pretty consensus take at the beginning of the year but the market mayhem created by Russia's invasion of Ukraine has forced strategists to reconsider all of their early 2022 trades.
"We entered the year with the calls for style and sector rotation, out of Growth into Value, with our key sector tilts longs in Financials and in Commodities", JP Morgan's strategy team wrote this morning.
"The latest escalation in the Ukraine-Russia crisis is a clear challenge for the chunks of this positioning", they admit.
The team nevertheless thinks that looking beyond the next few weeks, the case for European banks and Europe might still stand.
"We believe that Europe and Banks should continue to be seen as fundamental OWs on anything longer than 1 month horizon, especially if commodity flows are not cut from Russia", they write.
More generally, there's always a risk in moving too fast in reaction to geopolitical tensions they argue.
"Historically, vast majority of military conflicts, especially if localized, did not tend to hurt investor confidence for too long, and would end up as buying opportunities".
(Julien Ponthus)
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WHEN THE END OF HISTORY ENDS (0653 GMT)
Francis Fukuyama's bestseller "The End of History and the Last Man" was published 30 years ago and popularised the idea that the triumph of liberal democracy would open a new era of global peace and prosperity after the Cold War.
Since then, a long list of events and trends, from the 9/11 attacks to the rise of populism, has made that idea look somewhat outdated but Russia's invasion of Ukraine probably constitutes the final nail in that narrative's coffin.
On this last Monday morning of February 2022, the future looks very different to what it did just a week ago.
Short term, financial markets are facing an extremely volatile situation worsened by the fact the 2022 outlooks sent by investments banks at the end of 2021 are now completely irrelevant.
The massive sanctions implemented by Western allies, notably the step to block certain Russian banks from the SWIFT payments system is sending oil prices above $100 a barrel. read more
One of the most spectacular effect of the sanctions was the rouble collapsing nearly 30% overnight with investors rushing to find safe havens in the dollar and gold while the euro fell a sharp 1%. read more
The urgency to park capital safely was also exposed through the 10-year U.S. Treasury yield falling about 9 basis points to 1.89%.
Still, the current rally on safe government bonds tells little about how central banks will react to the crisis.
As much as surging energy prices lifting inflation further make the case to speed up monetary tightening, the unavoidable hit on economic growth also needs to be addressed. Goldman Sachs estimates the conflict could shave off as much as 0.4% of euro area GDP this year.
Bets were on the U.S. Federal Reserve and the European Central Bank to proceed more cautiously than previously expected have grown.
Across equity markets, European bourses are most exposed and futures show the continent's blue chips opening down about 3% while in Asia, MSCI's index of regional stocks (.MIAP00000PUS) was roughly flat.
Among major announcements over the weekend, Norway's $1.3 trillion sovereign wealth fund said it would divest its Russian assets and Britain's BP decided to exit the capital of Russian giant Rosnet (ROSN.MM). read more
Key developments that should provide more direction to markets on Monday:
-Japan's factory output hit by car production cuts, Ukraine crisis adds to risks read more
-Fed speakers: Atlanta President Raphael Bostic
-European earnings: Atos, Bak of Ireland, Associated British foods, Erste Bank, Clariant
-U.S. earnings: Hewlett-Packard
(Julien Ponthus)
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UKRAINE: EUROPEAN BOURSES SET TO PLUNGE AT THE OPEN (0602 GMT)
European stocks markets are set to plunge at the open with futures for the pan-European blue chip STOXX 50 index and Germany's DAX currently losing 3.5% and 3%.
Sanctions taken by Western allies against Russia have already had a major impact overnight on global financial markets with oil prices surging and the rouble collapsing 30%.
Investors are rushing for safe havens with gold and the dollar in high demand while the euro is losing about 1%.
Asian stock markets which are less exposed to the crisis are just slightly negative with MSCI's index of regional stocks lost 0.1%.
There's more tension surrounding U.S. stocks markets. Futures for the S&P 500 and the Nasdaq are down 2.1% and 2.2%.
(Julien Ponthus)
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