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European equity markets have suffered amid worries the fallout of the Ukraine/Russia war will drag down growth in the region and raise inflation. Euro Stoxx50 dividend futures maturing in 2023 and 2024 have fallen about 23%, underperforming the Stoxx50 by 8% amid the growing concerns that many companies will conserve cash, as opposed to paying dividends. Some strategists see this as signs markets are becoming overly worried about the risks of dividend cuts. Together with the rapid decline in investor sentiment, these signs are typically encouraging, raising the hopes that markets are bottoming. Yet, as the sanctions and war escalation rages on, the impact it will have on markets globally remains blurred and thus fears remain particularly elevated.  

Global equities are under heavy pressure. The Russia/Ukraine situation has increased fears that a global commodities shortage (oil, metals, wheat, etc.) could lead to a spike in prices and as such hurt the ongoing economic recovery at a time when policy support (fiscal and monetary) is forced by inflation to recede. The Stoxx50 is down nearly 19% ytd and is at another “moment of truth” with the index approaching the 3400 level. while it is true that growth concerns are legitimate risks, looking at technical indicators lets us believe that stocks could bounce from current levels. RSI indicators from major indices (Stoxx50, Nikkei200, CSI300) and depressed market breadth point to oversold regions. And with ECB officials meeting on Thursday, the announcement of a more market-friendly approach could further improve sentiment and provide support to risky assets.

European stocks futures initially fell heavily earlier this morning as Russia threatened to cut natural gas supplies to Europe via the existing Nord Stream pipeline. Stocks in Europe then recovered losses and rallied 1.6% after reports that the European Union is considering joint bond sales to fund the fallout from Russia's invasion of Ukraine. The bloc faces massive financing needs as it aims to strengthen its military and energy infrastructure. The euro strengthened 0.2% against the USD to 1.0878. The fear of added debts in the eurozone caused German bunds to rise nine basis points. The bond-sale proposal may be presented as soon as next week.

Stocks are selling off globally as oil and other commodities are surging higher, after reports that the US is discussing a ban on Russian oil. European stocks are particularly vulnerable to Western sanctions on Russia and instability in the region. Since hitting a record high in January, the Stoxx 600 has slumped 17%, including this morning's drop of 3.6%. Strategists have lowered their year-end target for the Stoxx 600 by 5%. Similarly, the spread between Europe and US volatility reached its highest since the start of the pandemic. The high uncertainty in the region is also making its way in currency markets with the EUR/USD trading at 1.0860, close to its pandemic low of 1.0657

Unemployment claims for the final week of the month of February fell to the lowest level since the start of the year, coming in at 215'000, 18'000 lower than expected. Similarly, continuing claims were virtually unchanged on the week at 1.476 million. Equities are having a nice rally as the drop in claims is consistent with a strong labor market, a piece of news that brings much-needed optimism in these uncertain moments. This trend should continue as loosening Covid restrictions are likely to encourage Americans to go to work and to motivate employers to retain workers as activity reignites.