Europe: Stocks drop as Russia-Ukraine tensions escalate

[BENGALURU] European shares fell on Thursday (Feb 17) as heightened Russia-Ukraine tensions eclipsed a slew of encouraging earnings from companies such as Kering, Reckitt Benckiser and Commerzbank.

The pan-European Stoxx 600 index fell 0.7 per cent with banking and energy shares leading declines as oil prices dropped and benchmark European bond yields slipped for the second consecutive session as investors sought shelter in the safety of bonds.

There was also a fall in yields on the German 10-year government bond, the go-to safe-haven asset in the euro zone.

US President Joe Biden said on Thursday there was now every indication Russia was planning to invade Ukraine, including signs Moscow was carrying out a false flag operation to justify it, after Ukrainian forces and pro-Moscow rebels traded fire.

The Kremlin accused Biden of stoking tension and released a strongly worded letter which accused Washington of ignoring its security demands and threatened unspecified "military-technical measures". Moscow also ejected the number 2 official from the US embassy.

"We believe the market is underappreciating the potential risks that are out there," Elwin de Groot, senior market economist at Rabobank, said.

"If you look at commodity markets in recent weeks, there's huge volatility and prices increases, especially in the energy complex. That raises the potential for more nasty inflation surprises in the coming months."

Travel stocks were the top losing European sub-index, down 1.7 per cent, over fears that the potential conflict could derail the recovery of the sector, especially of airline stocks.

France's CAC 40 slipped 0.3 per cent, the least among its European peers, boosted by a 5 per cent jump in luxury goods maker Kering after it reported sharp growth in quarterly sales on the back of its top Gucci brand. Peer Hermes added 1.1 per cent.

Key volatility gauges in markets have jumped in recent weeks as fears grow of a war between Russia and Ukraine. While Moscow has denied it would invade its neighbour, the West has threatened Russia with harsh economic sanctions.

Concerns about surging inflation and rising interest rates have also knocked risk appetite, with traders ramping up bets for aggressive policy tightening from the US Federal Reserve.

However, there has been some respite as 65 per cent of the nearly half of Stoxx 600 companies reporting earnings have beaten analysts' profit estimates, as per Refinitiv data.

Among quarterly earnings, Britain's Reckitt Benckiser Group rose 5.9 per cent after it beat fourth-quarter sales forecasts.

Commerzbank added 3.2 per cent after the German lender swung to a better-than-expected fourth quarter and painted a rosy outlook for 2022.

Airbus slipped 1.3 per cent after it predicted higher profit and deliveries for 2022 but cautioned that supply chain tensions and a spike in inflation remained challenges for now.

Continental jumped 3.3 per cent after Manager Magazin reported the German auto parts supplier is considering splitting into 4 separate businesses. REUTERS