Closing summary
Global stocks have staged a recovery today, with the FTSE 100 index in London 0.4% ahead while France’s stock market has gained 1%. Wall Street has also opened higher.
The Russian miner Evraz is the top faller in London, down 10.5%, while Barclays is the top riser after bumper results. The UK lender paid out more bonuses to its investment bankers and traders, but froze £22m of bonuses for former boss Jes Staley until there are further developments in a regulatory investigation into his links to Jeffrey Epstein.
The Russian rouble has fallen back towards 80 to the dollar today, trading down 1.2% at 79.74.
Here is a handy explainer on western sanctions:
And the Ukraine-Russia crisis explained: a complete visual guide:
Final data from Eurostat showed eurozone inflation rose to an all-time high of 5.1% in January, while a separate survey from GfK showed an unexpected drop in consumer confidence, because of rising Covid-19 infections and high inflation.
Our other main stories today:
The governor of the Bank of England has called on businesses to show restraint when raising their prices, after he came under heavy criticism for saying workers should not demand big pay rises to help manage inflation.
Andrew Bailey said that he recognised his call for workers to show restraint in the annual wage-bargaining process was unpopular, but warned that there were risks of an upward spiral for inflation taking hold.
Thank you for reading. We’ll be back tomorrow. Take care. -JK
Analysts at ING have looked at the market reaction to the western sanction so far, which is limited as today is a public holiday (Defender of the Fatherland Day) in Russia.
Russia’s recognition of the Donetsk and Lugansk People’s Republics (DLPR) has sparked global outrage and triggered the first tranche of sanctions. Although Russian markets are closed for a public holiday, offshore trading shows a continued sell-off in Russian USD debt.
There has been no trading of local currency OFZ Russian sovereign bonds today, but the more liquid 2047 dollar Eurobond has sold off further, with yields another 50bp higher near 6.00%. In light of new prohibitions to trade Russian sovereign bonds in the secondary market, for new debt issued from 1 March onwards, investors will watch carefully for the performance of OFZs when they re-open tomorrow.
Prior to the sovereign debt sanction announcement, non-residents held RUB2.8 tr ($35.3 bn), or around 18% of the overall OFZ market. Russia is now experiencing the fifth consecutive month of foreign portfolio outflows from OFZ.
The rouble initially took the new sanctions in its stride but remains vulnerable.
Commodities have been pricing in a fairly large risk premium as tensions between Russia and Ukraine escalate. This is not a surprise, given the powerhouse that Russia is when it comes to commodities. This is particularly the case for crude oil, natural gas, palladium, platinum, nickel, aluminium and wheat. The concern has been that any sanctions from the West could potentially disrupt export flows of these commodities, at a time when a number of these markets are already tight and trading near multi-year highs.
However, sanctions announced so far should have little to no impact on most of these key commodities. Therefore, it is not surprising that we have seen oil and some metal markets (aluminium and nickel) trading lower from their recent highs. But, given that there is still plenty of uncertainty over how the situation will evolve, we would expect markets to continue to price in a fairly large risk premium, particularly given that the current tightness in a number of these markets leaves them more vulnerable to supply shocks.
