Closing summary
The week has ended on a calmer note in financial markets, even as Russian troops advance on the Ukrainian capital after yesterday’s full-scale invasion of the country, which took markets by surprise.
European stocks are pushing higher: the UK’s FTSE 100 index in London is 260 points, or 3.6%, ahead at 7,467. Germany’s Dax and France’s CAC have both gained about 2.9% while Italy’s FTSE MiB is 3.4% ahead, following heavy losses yesterday.
The London-listed Russian steel and mining group Evraz is still the top FTSE 100 riser, up 20% after heavy losses in recent days. It paid out a $1.55bn dividend to shareholders, including $450m to 29% shareholder Roman Abramovich after profits trebled, but warned that future profits could be affected by economic sanctions aimed at the Kremlin and its allies.
On Wall Street, the Nasdaq has slipped 0.5% (after yesterday’s strong gain of over 3%), the S&P 500 has edged 0.2% higher and the Dow Jones is 0.8% higher.
Russian stocks in Moscow have also staged a comeback after Thursday’s invasion triggered record losses, with the benchmark rouble-based Moex index rising 16.7% while the dollar-based RTS index is 23% ahead. Russian government bonds also recovered after yesterday’s sell-off.
The rouble has recovered to 83.5 against the dollar, up 2%, and to 93.7 against the euro, up 1.6%. Yesterday it slumped to a record low of 89.60 against the dollar.
Oil and gas prices have retreated. Brent crude, the global oil benchmark, has fallen below $100 a barrel (after topping $105 for the first time since August 2014 yesterday) and is trading 1.7% lower at $97.21 a barrel, while US light crude is at $91.75 a barrel, a 1.1% drop.
The benchmark British natural gas contract dropped 29% to 229p per therm today while the Dutch benchmark contract fell nearly 20% to €108 per megawatt hour, following gains of more than 40% on Thursday.
Gold rose to 17-month highs this week amid a flight to safety from which the dollar also benefited while the pound fell sharply yesterday.
Thank you for reading. Have a great weekend! We’ll be back next week. - JK
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Turner says that the Swedish krona, which is “close to the action” (geographically) and with a dovish central bank, has been one of the worst performers this week, along with the Polish zloty, Hungarian forint and Czech koruna. Euro and sterling also underperformed, with the pound falling more than 1% against the dollar yesterday.
There has been a flight to safe-haven currencies like the US dollar. He notes that the US is far less exposed to Russia in terms of trade ties than Europe. There’s also less of a debate about whether the Federal Reserve’s plans for rate hikes will be affected by the war in Ukraine.
Finally, the Chinese renminbi is “one of the standout performances” and lived up to its reputation as a world reserve currency. Turner says traditionally, safe-haven currencies are backed by countries’ large trade surpluses and “that is certainly the case for China at the moment”.
He predicted further weakening in the Russian rouble:
The rouble has to stay soft in the current environment.
Vladimir Putin’s decision to invade Ukraine sent tremors through global markets this week, with investors bailing out of risky assets and rushing into perceived safe havens.
In this podcast, ING’s global head of markets Chris Turner explains how currency markets have responded to the crisis and what might happen next. He and senior editor Rebecca Byrne reflect on a historic week that has shaken confidence and rocked financial markets around the world.
The rally on European stock markets has gathered steam:
- UK’s FTSE 100 index up nearly 230 points, or 3.2%, at 7,436
- Germany’s Dax up 3% at 14,472
- France’s CAC up 3% at 6,716
- Italy’s FTSE MiB up 3.5% at 25,746
The London-listed Russian steelmaker Evraz is still leading gains on the FTSE 100, up 23% –– good news for its 29% shareholder Roman Abramovich, the Russian billionaire who owns Chelsea FC. Evraz suffered heavy losses in recent days, though.
There’s even more good news for Abramovich. Evraz today handed investors a $1.55bn (£1.2bn) dividend, worth approximately $450m to the billionaire, but warned profits could be affected by economic sanctions aimed at the Kremlin and its allies. The company reported a 45% rise revenues to $14.1bn last year, mainly from the sale of steel but also from coal, while pre-tax profit more than trebled to $4.2bn.
The Anglo-Russian precious metals miner Polymetal, which is registered in Jersey but has substantial operations in Russia, has also recouped some of yesterday’s losses, trading 9.6% higher on the FTSE 100.
More news on the sports front: Manchester United have cancelled their £40m sponsorship deal with the Russian airline Aeroflot, the Daily Mail reports.
This in response to Russia’s invasion of Ukraine yesterday, and comes after United flew to Madrid on Tuesday with the British charter airline Titan Airways.
A United Spokesperson said: “In light of events in Ukraine, we have withdrawn Aeroflot’s sponsorship rights.”
Petrol and diesel reach new record highs
While the price of Brent crude has dipped below $100 a barrel today after rising to over $105 yesterday, the price has risen from around $93 at the start of the week.
This has pushed up petrol and diesel prices at British forecourts.
The average price of both petrol and diesel rose to new record highs for the fourth time this week, the RAC motoring group reported. Unleaded rose to 149.67p yesterday, moving closer to the 150p a litre milestone, while diesel topped 153p, rising to to an average of 153.05p, for the first time ever.
RAC fuel spokesman Simon Williams said:
Sadly, more increases are on the way as a result of oil hitting $106 a barrel and the pound weakening, making wholesale fuel more expensive to buy for retailers in the UK. This is the worst possible combination for drivers as it will push already rising prices higher still and worsen the cost of living crisis. Drivers need to brace themselves for what’s to come, with many on lower incomes having to make difficult choices as a result of needing to put fuel in their cars.
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Russia has been stripped of the men’s Champions League final, which will now be held in Paris rather than St Petersburg.
And Formula One has cancelled the Russian Grand Prix in Sochi after the country’s invasion of Ukraine. The sport did not issue any condemnation of Russia but cited the “impossibility” of holding the race under the current circumstances. The Russian Grand Prix is an annual motor racing event held at Sochi Autodrom as part of the Formula One World Championship.
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As a reminder, you can follow the latest developments on the ground on our Ukraine crisis live blog:
My colleague Mark Sweney has the latest on VTB Bank and VTB Capital.
VTB Capital, a subsidiary of Russia’s second largest bank, VTB, has been suspended from trading on the London Stock Exchange following the UK implementing sanctions over Vladimir Putin’s move to invade Ukraine.
The London Stock Exchange Group said on Friday that it has suspended VTB Capital’s membership with “immediate effect” which means that it can no longer trade in the capital.
The move comes following Boris Johnson announcing the “largest ever” range of sanctions against Russian firms and individuals including freezing the assets of all major Russian banks, including VTB.
VTB, which is majority-owned by the state and has interests in banking assets across Eastern Europe, has assets totalling £154bn. Legislation is expected to be tabled next week to ban major Russian companies from raising finance on UK markets and to prevent Moscow from raising sovereign debt in London.
“Sanctions are a reality for us over the last few years and another round of politically motivated anti-Russian sanctions did not come as a surprise,” VTB said in a statement.
There are a number of VTB executives, and those with links to the bank, who feature in the government’s list of individuals that it has levelled sanctions.
These include VTB’s president-chair Andrey Kostin, who is also a member of the Supreme Council of the “United Russia” political party, as well as high-ranking executives Andrey Puchkov and Yuriy Alekseyevich Soloviev.
And Denis Bortnikov, the deputy chair of VTB Bank’s management board. He is a deputy president of VTB Bank and chair of its management board. Son of Aleksandr Bortnikov, a director of the Federal Security Service (FSB), who has been on the sanctions list since March 2021.
Market summary: Brent crude back below $100
Global stocks have bounced back, but not enough to make up the steep losses run up yesterday. The UK’s FTSE 100 index has advanced 155 points, or 2.2%, to 7,363 while the other main European indices have gained between 1.3% (Germany) and 16.% (France).
Brent crude has fallen back below $100 a barrel, trading 0.37% lower at $98.71. US light crude has retreated to $92.3 a barrel.
Gas prices have also declined today after yesterday’s surge. The British Gas benchmark is 19% lower at 261p per therm, while the European benchmark has fallen by a similar amount to €108 per megawatt hour.
London-listed Russian companies have seen their shares recover after yesterday’s steep losses.
Among the state-backed oil and gas producers, Rosneft has jumped nearly 66% after tumbling 50% on Thursday, while Gazprom is up 3.3% after yesterday’s 25% drop and Lukoil is 28% ahead this morning.
As for Russia’s two biggest banks, VTB Bank gained 9.3% and Sberbank has jumped nearly 60%.
The London Stock Exchange said it had suspended VTB Capital, a subsidiary of VTB Bank.
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BA suspends flights to Moscow
British Airways said it had suspended flights to Moscow, and warned customers that some flights to destinations east of Russia would now take longer due to rerouting, reports our transport correspondent Gwyn Topham.
It operated to the Russian capital three times a week but currently did not fly to any other destinations in Russia or Ukraine - nor used Ukrainian airspace.
However, the move will increase escalating fuel costs and pose more headaches for the national carrier’s long-haul services.
A spokesperson said:
We have suspended our flights to Moscow and also the use of Russian airspace, following the confirmation of Russian government restrictions.
We apologise for the inconvenience but this is clearly a matter beyond our control. We are notifying customers on cancelled services and are offering a full refund.
We will continue to monitor the situation closely.
French inflation rises to 3.6%, but not as high as elsewhere
France has published inflation figures this morning. Inflation came in at 3.6% in January, up from 2.9% and a bit stronger than expected.
ING economist Charlotte de Montpellier reckons inflation “remains reasonable”. It certainly is, compared with other countries –– in the UK and Germany, inflation is above 5%.
She said:
So although inflation is rising strongly in France, it is still lower than inflation in other European countries.
This difference between France and its European neighbours is mainly explained by energy prices, which did not increase as much in France as elsewhere. This is due to the actions put in place by the French government to limit the impact of rising energy prices on households, including the “tariff shield” which locks the price of gas at its 2021 level.
In addition, the capping of the price of electricity at a maximum increase of 4% in 2022 also plays an important role: the electricity component in the harmonised index of consumer prices is up by only 4% in France compared to an average of more than 27% in the eurozone.
Ultimately, the smaller rise in gas and electricity prices leads to less inflationary pressure on all sectors of the French economy than in the eurozone area, and therefore also to lower non-energy inflation. We expect inflation in France to remain below inflation in the eurozone throughout the year.
🇫🇷 French inflation has been lower than in other countries, but is now facing a perfect storm: very high energy costs; core goods rebound post winter sales; services inflation firming up.
— Frederik Ducrozet (@fwred) February 25, 2022
Expect similar trends in underlying price pressures in other euro area countries in Feb-Mar. pic.twitter.com/VXajBm7zbX
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Gas prices fall back
Brent crude is now hovering just above $100 a barrel, after rising above $105 yesterday when markets were rattled by Russia’s invasion of Ukraine.
Gas prices surged more than 40% yesterday but have fallen back today. The price of the British March gas contract has fallen 24% to 246p. On the Dutch exchange, the European benchmark natural gas contract dropped 20.7% to €106.50 per megawatt hour.
European benchmark nat gas TTF falls ~20% early on Friday as Russian gas flows into the EU (via Ukraine) surge. European utilities are asking Gazprom to ship more gas, and the Russian state-owned giant is happy to oblige. Capitalism in times of war | #Ukraine #UkraineInvasion
— Javier Blas (@JavierBlas) February 25, 2022
Russia's civil aviation authority bans UK flights to Russia
Russia’s civil aviation authority has banned UK flights to and over Russia in retaliation for the British ban on Aeroflot flights, PA reports.
Rosaviatsiya said that all flights by UK carriers to Russia as well as transit flights have been banned as of today.
It said the measure was taken in response to the “unfriendly decisions” by the British authorities who banned flights to the UK by Russian flag carrier Aeroflot as part of sanctions over Russia’s invasion of Ukraine.
#Breaking Russia’s civil aviation authority has banned UK flights to and over Russia in retaliation for a British ban on Aeroflot pic.twitter.com/dUrK4vkhpQ
— PA Media (@PA) February 25, 2022
Here’s a round-up of today’s other main stories.
The owner of British Airways, International Airlines Group, more than halved losses to €3.5bn in 2021 and expects to return to profit this year as long as operations are not significantly disrupted by Covid-19 or the invasion of Ukraine.
The company, which made a record €7.4bn (£6.4bn) loss in 2020, said that passenger levels were still only 36% of pre-Covid levels last year.
The Ukraine crisis has plunged Germany into an intense debate about how it will heat its homes and power its industry in future, summed up in the short question: can Europe’s largest economy function without Vladimir Putin’s gas?
News from last night: Two former European leaders quit the boards of Russian companies yesterday in response to Russia’s invasion of Ukraine.
Finland’s former prime minister Esko Aho said he had resigned as a director of Russia’s largest bank, Sberbank, while the former Italian prime minister Matteo Renzi announced he had quit the board of Russia’s largest car-sharing service, Delimobil.
Brompton has revealed plans to invest as much as £100m in a new UK factory that will secure its place as the UK’s biggest bicycle manufacturer. In an added twist it has decided to reject the normal grey shed, instead opting to build its plant on stilts amid a newly restored wetland.
The folding bike maker plans for the new site at Ashford in Kent to be open by 2027, on a 40 hectare (100 acre) floodplain. The stilts will be needed to prevent the factory being regularly inundated. It will also have no new car parking, instead relying on new pedestrian and cycle paths from the train station.
And John Lewis is ditching its “Never Knowingly Undersold” price pledge after nearly a century, saying it had lost relevance at a time when it faces stiff competition from online retailers such as Amazon, reports our retail correspondent Sarah Butler.
The staff-owned department store chain said it had made the decisions to retire the well-known slogan this summer as its price promise only referred to like-for-like items sold by national retailers who sold both online and in store and shoppers were increasingly buying online.
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Neil Wilson, chief market analyst at Markets.com, has looked at the reasons behind the turnaround in stock markets.
The US dollar is gaining a bit of ground this morning though as risk mood remains very much on edge…Russia does not seem to have done as much in its first day as it would have hoped and fears grow for more protracted, bloody battles ahead.
Reasons for the turnaround? Chiefly we can say that markets sold off aggressively early yesterday on fear – fear of sanctions rather than a fear for the future of Ukraine. The absence of any sanctions on Russia oil and gas, and decision to not exclude the country from the Swift payments network left the market breathing a sigh of relief as to the global economic impact the invasion might have.
It’s sad to say the market does not care particularly about the plight of Ukrainians. We could also say that the market looked oversold and buy the dip still pervades...many think invasion is the time to be buying not selling.
It’s hard to get a real handle on where we are right now – the market reaction reflects wide range of potential outcomes, ie uncertainty over what happens on the ground as well as sanctions. Truth is most market participants are not experienced in what we face today: War + inflation...this is late 70s/early 80s type territory.
Big question right now is whether central banks slam the brakes on their nascent hiking cycles. This could give some relief to tech/growth but could unleash further inflation pressures on the demand side, adding to the increasing cost-push supply side inflation we are encountering.
A snap on Reuters: The London Stock Exchange has suspended membership of Russia’s VTB bank, following the package of sanctions announced by the UK government yesterday.
VTB is one of Russia’s biggest banks and has a secondary listing in London. It is among 31 Russian companies listed on the London stock exchange.
Russia's 22 richest billionaires lose $39bn in net worth after Ukraine invasion – Bloomberg
Russia’s 22 richest individuals saw their net worths plunge by a combined $39bn in less than 24 hours after their country invaded Ukraine, according to the Bloomberg Billionaires Index.
The wealth wipeout came after Moscow’s benchmark MOEX Russia Index crashed 45% in early trading, and closed 33% lower on Thursday.
The Russian billionaires lost more money on Thursday than they had lost year-to-date up until Wednesday, according to Bloomberg.
The biggest loser was Vagit Alekperov, chairman of Moscow-based oil company Lukoil, who saw his wealth fall by a third in one day as the company’s share price plummeted 32% on Thursday. Alekperov now has a net worth of $13bn, down from $19.2bn, according to Bloomberg.
Vladimir Potanin, Russia’s richest known man (no one knows for certain just how rich Russian president Vladimir Putin is), lost $3bn after the share price of Norilsk Nickel, where he is the president, crashed 26%.
The west has held back from the potentially most severe sanction, blocking Russia from an international payments system through which it receives foreign currency (SWIFT).
This is so, so key. https://t.co/1pHlue7pgo
— Abhinav Ramnarayan (@abhinavvr) February 25, 2022
Russian and Ukrainian sovereign dollar-denominated bonds are also making a comeback after yesterday’s sell-off.
Russian bonds gained as much as 5 cents, while Ukrainian bonds rose 22.2 cents.
The Russian 10-year rouble government bond has stabilised, with the yield steady at 12.69% after hitting a seven-year high of 14.09% on Thursday. (When bond prices fall, yields rise.) A yield is the return an investor will get from a bond, calculated by dividing its face value by the amount of interest it pays.
Russian stocks, rouble bounce back
Russian stock markets have also bounced back from yesterday’s heavy losses. The dollar-denominated RTS index in Moscow has gained 25% while the rouble-based Moex index rose nearly 20%. Record declines dragged the indices to their lowest levels since 2016 on Thursday.
The rouble has firmed 2.2% against the dollar to 83.41, after hitting a record low of 89.60 yesterday. Against the euro, it has gained 1.8% to 93.46, after falling to an all-time low of 101.03 yesterday.
The Russian central bank intervened in the currency markets yesterday and bought millions of roubles to shore up the beleaguered currency.
Analysts believe the central bank could also carry out an unscheduled interest rate hike as it did in late 2014 (the year when Russia annexed Crimea from Ukraine), when it raised the key rate to 17% from 10.5% late at night to stem heavy losses in the rouble.
Analysts at Morgan Stanley said:
We think a prompt out-of-schedule 400 basis points or bigger by the Central Bank of Russia is likely with the key rate exceeding 13%.
The central bank raised its key interest rate by 100 basis points to a five-year high of 9.5% two weeks ago and hinted at further hikes, as inflation is far above its 4% target. In January inflation hit 8.7%.
The UK and German stock markets have opened more than 1% higher.
- UK’s FTSE 100 up 82 points, or 1.1%, at 7,289
- Germany’s Dax up 1.3%
- France’s CAC up 0.8%
- Spain’s Ibex up 0.3%
- Italy’s FTSE MiB up 0.6%.
On the FTSE 100, the Russian steelmaker Evraz and Anglo-Russian miner Polymetal are the biggest risers, after heavy losses in recent days. Evraz has bounced back with a 38% gain, while Polymetal rose 11% initially and is now trading 6% higher, after yesterday’s 38% plunge.
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Ipek Ozkardeskaya, senior analyst at the bank Swissquote, said:
What’s happening in Ukraine is a Black Swan event; it’s worse than the worst-case scenario that has been put on paper over the past couple of months, and it’s clearly not a limited military operation, it’s really a full invasion of a country, that no one could explain other than Putin’s regret for the Soviet Union’s demise and his unacceptance of the post-Cold War security architecture.
Sanctions are being imposed on Russian financial sectors, transport, and exports. Major economies will stop financing the Russian debt and cut the provision of semiconductors. Taiwan’s chipmaker TSMC said it’s fully committed to complying with new export rules. But there are sanctions that didn’t go through. Europe for example opposed to leave the Russian banks out of Swift, and Biden won’t impose sanctions on Russian energy, aluminum, and wheat industries to avoid penalizing the rest of the world.
Still, the Russian energy companies are taking a very heavy toll right now. Gazprom shares dived up to 50% yesterday before closing the session 25% lower. Lukoil sank near 45% and closed almost 23% down, while the Moscow Exchange lost up to 30% before closing 20% lower. That’s understandable as Russian companies will be cut off from the rest of the world in terms of business and financing. But it is also said that only about 16% of the Russian companies’ cash holdings are in US dollars, the rest is in Chinese yuan, euro and gold, to help the companies carry on, at least for a while, as the crisis extends.
Introduction: Wheat jumps to highest since 2008; stocks calmer
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Yesterday we woke up to the bleak news that Russia had invaded Ukraine. Today we are expecting a Russian tank attack on its capital, Kyiv, which could become the hardest day in the war, an adviser to Ukraine’s interior minister said.
Russian troops are advancing on Kyiv and Ukrainian president Volodymyr Zelenskiy pleaded with the international community to do more, saying the sanctions announced so far are not enough. An estimated 100,000 people have fled as explosions and gunfire rocked major cities, and dozens have been reported killed, according to Reuters.
You can follow the latest on our Ukraine live blog here:
Ukrainian officials are angry that European leaders have held back from imposing the potentially most damaging sanction on Russia, blocking Russia from an international payments system through which it receives foreign currency.
However, other new sanctions have been imposed by the UK, US, the European Union and other countries.
The UK has frozen the assets and imposed a travel ban on eight named individuals and 11 businesses, including six banks. Hundreds more individuals sitting on Russia’s Dumas will also face sanctions.
Michael Hewson, chief market analyst at CMC Markets UK, said:
While the sanctions set to be imposed are on a significantly stronger scale than any previous ones announced, they are unlikely to be enough to change Putin’s calculus in the short term, given that Russia’s energy markets, along with other key exports, and access to Swift were left out.
This perhaps helps explain why US markets reversed course after European markets closed, to finish the day strongly higher, with the Nasdaq 100 leading the way with a gain of over 3%, only hours after having been down 3%, soon after the market opened.
Yesterday’s surge in oil prices up to $105 a barrel also proved to be short-lived, as prices slid back after it became clear that the sanctioning of exports of Russian energy were also off the table for the moment, although prices are still elevated, with Brent back above $100 a barrel, while agricultural commodities like corn and wheat also continued to rise.
Asian shares mostly bounced back from the previous day’s losses: Japan’s Nikkei closed nearly 2% higher while South Korea’s Kospi rose 1% and Hong Kong’s Hang Seng was down 0.5%. European markets are expected to open higher after yesterday’s heavy losses.
While stock markets appear calmer, wheat prices have jumped to the highest level since 2008, threatening to push up food prices. Ukraine is a major wheat exporter and is known as the bread basket of Europe. Together, Russia and Ukraine account for a third of the world’s wheat supply.
Wheat futures in Chicago rose 2.8% to $9.6075 a bushel in early Asian trading, after surging by the maximum allowed by the exchange yesterday, while corn and soybeans also rose, Bloomberg reported. Corn rose 1.2% to $6.9825 a bushel, and soybeans were 0.8% higher.
Crude oil is trading at $101.98 a barrel, up 2.9%, after touching $105 for the first time since August 2014 yesterday. US light crude is 2.6% higher at $95.21 a barrel.
Gold, a safe-haven investment, continues to climb, rising 0.7% to $1,916 an ounce.
The Russian rouble has recovered somewhat after hitting a record low of 89.60 against the dollar yesterday. It has risen nearly 2% to 83.60.
The Agenda
- 10am GMT: Eurozone consumer confidence final for February (forecast: 8.8)
- 11.15am GMT: European Central Bank president Christine Lagarde speaks
- 1.30pm GMT: US core PCE price index for January (forecast: 5.1%)
- 1.30pm GMT: US Durable goods for January
- 3pm GMT: US Michigan consumer sentiment final for February (forecast: 61.7)
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