Europe

The escalating drumbeat of conflict risk in Ukraine has seen European equity markets fall back sharply today, as the UK followed the US in announcing that it was removing non-essential embassy staff from Kyiv as concerns increased that a conflict was getting closer.

Reports during the day that NATO is putting additional ships and aircraft on standby, and that the US is considering sending troops to shore up its Baltic defences, has also upped the ante, after requests from the likes of Estonia for a greater US presence to deter a potential Russian escalation.  

These concerns are outweighing and overshadowing this week’s Federal Reserve rate meeting, and while we can expect to see the US central bank confirm that a March rate rise remains on the cards, anything more than that is likely to be a big ask, given events currently playing out in Europe, with the DAX falling below its November lows, and getting absolutely crushed, as it fell below 15,000 for the first time since 6th October last year.

There’s been precious little to cheer on the company's front on the FTSE100, which has dropped below the 7,400 level, to its lowest level since before Christmas, with only Unilever and Vodafone posting any gains of note.

Unilever shares have continued their recent rebound from last week's lows on reports that activist investor Nelson Peltz has built up a stake in the business with a view to taking on a more hands-on approach. These reports do seem plausible given how Peltz reportedly shook up its sector peer P&G after securing a place on the board four years ago, and which has seen P&G outperform its rivals over the past few years.  

Vodafone shares have also had a decent day, pushing up to their highest levels since June last year on reports that it is in discussions with Iliad to merge their respective Italian operations. There were also reports that Vodafone had held talks with its smaller rival Three about a possible tie-up, in the latter part of last year.  

Today’s losses have also been the heaviest in the likes of basic resources and consumer discretionary, as the more traditional havens of US treasuries, gold and the US dollar come back into favour, with the FTSE100 posting its biggest one-day decline since 26th November, when we got the Omicron meltdown.

We’ve also seen significant weakness in UK housebuilders after Jefferies cut the ratings of Barratt Developments and Berkeley Group on concern over the impact of higher costs which would be needed to pay for improvements to cladding. This isn’t exactly news given recent government announcements, however in the current febrile environment it’s just another excuse to sell.

We’ve also seen big losses in the likes of travel and leisure, with big losses in IAG, easyJet, but also in the likes of high street retail while Cineworld has also been hammered on reports that the next Mission Impossible film has been delayed until next year due to Covid.  

De La Rue has had its fair share of problems over the past few years its shares hitting a record low back in 2020, a far cry from when its share price was well above the £10 level back in 2013, from losing its contract to produce UK passports, a couple of years ago, the bank note producer has issued another profits warning, due to higher-than-expected costs as a consequence of having to deal with elevated numbers of staff sickness, and higher raw material costs in the production of its polymer bank notes. The share price fall does appear to be a touch overdone, as guidance was lowered from £45m to £47m to between £36m to £40m suggesting management's high degree of uncertainty for the rest of the year.

The decline in US treasury yields is in stark contrast to the narrative of a market concerned about US Fed rate rises, which would suggest that markets are more concerned about geopolitical risk than they are about what the Fed might have to say on Wednesday.      

US

US markets have also opened sharply lower, with the Nasdaq 100 once again leading the way lower with concern over high valuations becoming increasingly difficult to disentangle from the wider weaker tone, currently ripping through markets.

With the latest manufacturing and services PMI numbers for January showing a slowdown in Europe, we’ve seen a similar slowdown in the US with services activity slowing to its weakest levels since July, coming in at 50.9. Manufacturing was also soft, coming in at 55, increasing concerns that the US economy is now starting to slow, at the very time central banks are looking to tighten.

It’s no surprise that the companies most exposed in terms of valuations are getting absolutely annihilated, and with crypto currencies also getting battered, we’re seeing big losses in the likes of Coinbase which has hit new record lows today, as bitcoin prices hit their lowest levels since July last year and Ethereum, seeing a similarly sharp drop through its September lows, and falling by as much as 20%.

In the EV space Rivian has also moved to a new record low, moving below $60 and even further away from its $78 IPO price., which now looks even more ridiculous, than it did when the shares first came out of the blocks.

Tesla shares have also come under pressure, sliding below their December lows, and to the lowest levels since mid-October.   

FX

The US dollar index has pushed up to its highest levels since the 10th January as the greenback benefits from a haven boost, on the sharp rise in tensions on the Ukraine border with Russia.

The biggest losers are the likes of the Australian dollar, as well as the other commodity currencies, which tend to get hit the hardest when markets have concerns about the economic outlook.            

Commodities

Today’s weaker than expected economic data, along with a stronger US dollar has gone some way to knocking away some of the concerns about events in Eastern Europe, as prices slide further away from last week’s 7-year highs. While prices appear to be softening over concerns about a weaker economic outlook, the geopolitical backdrop is likely to keep a short-term floor in the medium term.

Gold prices which were looking fairly resilient in early trading have started to slip back in the afternoon session, with the stronger US dollar likely to be the main drag.  

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