European stocks drop as Russia-Ukraine tensions escalate

© Reuters. FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 10, 2022. REUTERS/Staff

By Sruthi Shankar

(Reuters) -European shares eased on Thursday as concerns over growing tensions in Ukraine eclipsed a slew of encouraging earnings from companies such as Kering (PA:PRTP), Reckitt Benckiser and Commerzbank (DE:CBKG).

The pan-European STOXX 600 index slipped 0.1% after rising as much as 0.3% in early trading.

France’s CAC 40 added 0.3%, boosted by a 6.6% jump in luxury goods maker Kering after it reported sharp growth in quarterly sales on the back of its top Gucci brand.

Peers LVMH (PA:LVMH) and Hermes rose 0.7% and 2.3%, respectively.

However, Germany’s DAX was flat and UK’s FTSE 100 fell 0.6%, while banking-heavy Italian and Spanish indexes fell about 0.4% each.

The mood across global markets was tempered by a Russian media report of mortar fire in eastern Ukraine, lifting demand for safe-haven gold and government bonds while hitting equities. [MKTS/GLOB]

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

“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.”

Economy-sensitive sectors such as insurers, travel & leisure and oil & gas were the top decliners in European sectors, falling between 1% and 1.2%.

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 U.S. Federal Reserve.

However, there has been some respite as 65% of the nearly half of STOXX 600 companies reporting earnings have beaten analysts’ profit estimates, as per Refinitiv data. In a typical quarter, 52% beat profit estimates.

Britain’s Reckitt Benckiser Group rose 5.3% after it beat fourth-quarter sales forecasts after fears of COVID-19 led to increased demand for its cleaning products.

Commerzbank added 5.6% after the German lender swung to a better-than-expected fourth quarter and painted a rosy outlook for 2022.

Airbus slipped 0.9%, even as the world’s largest jet maker predicted 720 jetliner deliveries and higher profit in 2022.

Continental jumped 3.1% after Manager Magazin reported the German auto parts supplier is considering splitting into four separate businesses.