- FTSE 100 loses 129 points
- Food prices would see further inflation from Ukraine conflict, analysts say
- Wall Street expected to join sell-off
4:50pm: FTSE sinks on Russia-Ukraine tension
The FTSE 100 sank 1.7% on Monday to close at 7,532 points.
Reports since Friday suggest an invasion has gone from being a risk to highly likely, OANDA's Erlam said.
"Coming during a period of high anxiety in the markets and a cost-of-living crisis in many countries, the timing couldn't really be much worse," Erlam said.
"Europe now finds itself in a very uncomfortable position. We're in the midst of an energy crisis and the bloc is incredibly over-reliant on Russia for supplies of gas. To make matters worse, Russia is also a major oil producer which is why the price of crude is inching ever closer to $100 a barrel."
4:00pm: FTSE 100 tanks 2% as Russia-Ukraine invasion threat turns up inflation heat
Stock markets are still overwhelmingly in the red, but most US tech giants have not read the memo.
Tesla Inc (NASDAQ:TSLA), Amazon.com Inc (NASDAQ:AMZN), Nvidia and Google parent Alphabet are among the tech stocks leading the rare green numbers on the global stocks dashboard.
London's FTSE 100 is down almost 150 point or 2% at 7,510, while Europe's main bourses are down more than 2% and the S&P 500 and Dow Jones are in the red across the pond, with only the Nasdaq Composite in positive territory, up 0.6%.
Oil prices are near long-term highs and gold is at a new three-month peak.
"Europe now finds itself in a very uncomfortable position," said market analyst Craig Erlam at Oanda.
"We're in the midst of an energy crisis and the bloc is incredibly over-reliant on Russia for supplies of gas. To make matters worse, Russia is also a major oil producer which is why the price of crude is inching ever closer to $100 a barrel.
"The inflationary consequences of all of this at a time when central banks are already eyeing multiple rate hikes and paring back bond-buying is making investors even more nervous.
"It's the perfect storm at a time when countries are already navigating through the global pandemic and managing major supply chain issues, all of which are already generating massive inflation.
"This has forced traders to aggressively price in multiple rate hikes from central banks this year, despite many continuing to push back against market expectations. They have gradually come around to the market's way of thinking in recent months but they remain behind the curve."
2.02pm: He said 'alright'
Stocks have taken their foot off the reverse accelerator after Russia's foreign minister Sergeĭ Lavrov's proposal to Vladimir Putin to continue diplomatic talks was accepted.
Putin said, "all right", Lavrov told reporters.
Financial traders took a sigh of relief, with the FTSE's losses reduced from near 150 to near 110, or 1.5%, while on the continent falls of 3% have turned to 2% declines.
With some kind of Russian intervention now priced in to markets, the next reaction will depend on the extent of the move and the impact on energy supplies, says Rupert Thompson, chief investment officer at Kingswood.
"Oil is already discounting this threat, at least to some extent," he said, with the price of Brent crude futures up to US$95 per barrel, the highest level since 2014.
"It is far from clear how long any Ukraine-related market decline will last. Certainly, the experience of most geo-political conflicts in the past, as long as they have been relatively contained, is that losses have not been that great or sustained for that long. That said, there is clearly a tail-risk that any such event spirals into a wider confrontation, inflicting more material and long-lasting damage on markets."
With Russia and Ukraine contributing to around a fifth of global wheat exports, several analysts have flagged the likely effect on food cost inflation.
At Shore Capital, analyst Clive Black noted that last week the US Department of Agriculture (USDA) has set out crop inventory estimates for the second time this calendar year, with wheat, soybeans and corn all seeing revisions to production and consumption, which caused further tightening of their already relatively low full-year stock-to-use ratios.
"The last time crop stock-to-use was this tight was 2015. Such news adds a little more pressure to the food supply chain and also raises questions of the CY22 northern hemisphere harvests where disappointment would be magnified by the market. Inflationary pressures are not yet easing," Black said.
12.35pm: FTSE tanks 2%
Having been paring the worst of its losses, the FTSE 100 is now tanking again, down more than 2% at 7,502, while the mid-caps of the FTSE 250 are down 518 points or 2.4% at 21,529.
US stocks are expected to join the blood-letting, especially as US intelligence was among those most explicitly warning that a Russian invasion is imminent.
The effect on stock markets "will be worse than Crimea", Goldman Sachs (NYSE:GS) chief strategists warned.
Last week's acceleration in US inflation to 40-year highs is also weighing on Wall Street sentiment, with the market pricing in faster rate hikes by the US Federal Reserve.
Tech stocks are expected to lead the retreat, with futures for the Nasdaq 100 down 1.2%, the broader S&P 500 pointing to a fall of 0.9% and the Dow Jones 0.8% in pre-market trading.
"Markets are reacting and investors should prepare for potentially turbulent times," said analyst Walid Koudmani at XTB, presenting three potential scenarios of the Ukrainian conflict and which key markets might be affected.
Russian banks and other institutions that maye be affected by potential sanctions on Russia are among top equity fallers today, including Evraz and Bank of Georgia in London today.
While investors may be focusing on Russia's RTS Index, Koudmani said: "A less obvious choice is Nasdaq. Why would US tech stocks react to the conflict in Europe? Well, since this market has its own share of problems (mainly Fed tightening), other bad news could impact investor sentiment even further."
And while the oil and gold markets are climbing amid geopolitical uncertainty, Koudmani notes that Russia is number one and two exporter of palladium and platinum respectively, with both Russia and Ukraine also important producers of wheat.
Looking at three potential scenarios, Koudmani says the worst would of course be invasion, as hinted at by US intelligence.
"Invasion means sanctions but actually the lack of sanctions is the key to reactions here (as the largest guns – like cutting off Russia from SWIFT – are supposedly off the table). Markets know that if Russia invades, forcing it to withdraw will be costly and that will feed uncertainty and fear."
This would be "critically negative" for Russian stocks, global stocks, positive for oil and precious metals and the dollar against the ruble, Koudmani said.
"The most likely scenario could be the one of prolonged tension," he added. "Moscow can pose threats for as long as it achieves certain results (there’s a talk of autonomy or even referendums in Eastern parts of Ukraine). While politically complicated, this scenario can actually be a relief for the markets. For as long as invasion risk declines, this scenario is positive for stocks while being negative for oil, precious metals and USDRUB.
"Finally a scenario most would prefer – there's a sound compromise and Russian troops are ordered away from the Ukrainian border. This would be extremely positive for stocks (especially Russian banks and the Russian index) while negative for oil, precious metals and USDRUB. Unfortunately, this scenario also seems to be the least likely."
11am: Investors out of love with stocks
London's blue chip stocks continue to be the least affected in the European 'Valentine's Day stock market massacre' as one analyst is of course calling it.
Having said that, only five of the Footsie are in positive territory, led by Mexican precious metals miner Fresnillo PLC and British American Tobacco PLC (LSE:BATS).
The other three are BAE Systems PLC (LSE:BA.), B&M European Value Retail and Avast plc.
“The prospect of war is rarely good for stock markets, and so the new trading week has begun on a bad note across Europe and Asia as investors fear the alarm clock is about to sound on a physical battle between Russia and Ukraine,” says Danni Hewson, financial analyst at AJ Bell.
“Should Russia go to war with Ukraine, there is no telling how long the battle will last, and the damage wrought on the stock market.
“Uncertainty is terrible for investors, and it will take real nerve to stay invested through war, particularly as news headlines are likely to cause panic on the markets. Yet patience has historically been rewarded as time in the markets is better than timing the markets."
Looking down among the stocks and shares falling for microeconomic reasons, the retail sector is braced for another setback with value chain Studio Retail getting ready to go into administration.
Mike Ashley’s Frasers Group PLC (LSE:FRAS) is the biggest shareholder in Studio Retail with a 28.89% position but will he swoop in with a classic bargain bid?
Another faller is Synthomer, despite forecasting a doubling of underlying profit, as the company cautioned that the easing of the COVID-19 pandemic has subdued demand for its nitrile latex for medical gloves.
9.44am: London least affected in Europe
European stock markets are in turmoil over the threat of a Russian invasion of Ukraine, with the bourses of Germany, France and Italy all down more than 3%.
London is the least affected, down 139 points or 1.82% to 7,521, with all of last week's gains wiped out and setting us back to where we were around 10 days ago.
Despite Russia's repeated declarations that it has no intention of invading and occupying Ukraine, tensions between the two countries are rapidly rising, with Russia-based miners, airlines and banks feeling the stock market heat.
"Banks are being hit as they are not only exposed to Russia through outstanding loans (SocGen, UniCredit etc) but also fears that Russia could be cut off from the Swift payments network," said analyst Neil Wilson at Markets.com.
Oil prices have risen to a seven-year high, close to US$96 a barrel and natural gas prices also surging.
Despite this, BP PLC (LSE:BP.) shares are down 3% due to its stake in Russia's Rosneft (AIM:ROSN).
With some people trying to look back to Russia's invasion of Crimea in 2014, market analyst Marshall Gittler of BDSwiss said he was "not sure how comparable the two events are.
"The Russian invasion of Crimea was limited in scope and didn’t involve anyone outside the country. This time NATO may well get involved, which could give rise to a much bigger conflagration."
Furthermore, Wilson wonders if the situation on the Russian border with Ukraine is really the main driver of the risk-off mood on the stock market.
He says "it’s got something to do with it...but that’s on the margins and headline-driven" - he thinks it’s more about the US Federal Reserve and uncertainty over what policy moves it might make in the coming weeks and months.
"Traders were probably selling the Russian headlines as an excuse as they didn’t want to hold risk over the weekend after a rough week for bonds. US equities were lower last week, whilst stocks in Europe firmed up – better concentration of value/cyclicals over tech/growth/momentum. Europe is catching up today though to erase last week’s modest advance."
With inflation hitting its highest level in 40 years last week, the US central bank called an unscheduled closed meeting for today, which will be held “under expedited procedures” to consider interest rates.
The last time such a meeting was held under those procedures to discuss those matters was on 23 November 2015, which was followed two weeks later by the first interest hikes since the financial crisis.
9.10am: Wipe-out
The Footsie has fallen 177 points or 2.3%, wiping out all the gains since the first day of February.
"In addition to the negative inflation report, worries that an invasion of Ukraine by Russia is imminent have pumped waves of volatility in markets, with investors expecting higher fuel prices and more supply chain bottlenecks as a result of the conflict," said Naeem Aslam, analyst at AvaTrade.
"President Joe Biden had a conversation with his Russian counterpart, President Vladimir Putin, but their dialogue failed to bear any fruit. As a result of the conflict, various airlines have stopped flights to Ukraine, and the United States of America has ordered its troops to depart the region."
8.28am: Bloody open
The FTSE 100 posted losses in triple digits in a bloody opening session as Russia looked unprepared to back down from an invasion of Ukraine.
The early part of the week looks set to be one of shuttle diplomacy with Europe’s leaders attempting to avert conflict.
“With the situation between Russian and Ukraine reportedly worsening with the increasing possibility of an invasion, diplomatic solutions thus far have had little impact,” said Richard Hunter, head of markets at Interactive Investor.
“In economic terms, while any such invasion would be most acutely felt in Europe, there would likely be wider implications such as the possibility of supply chain restrictions and a further boost to the oil price on lessened supply.”
In the background, and trivial by comparison, inflation worries continued to nag away at global markets in the aftermath of the US consumer price data, which revealed the cost of living there had increased at the fastest pace in 40 years.
Crude oil has now risen by 23% in the year to date, exacerbating inflationary pressures.
On the market, Evraz, the steelmaker with assets in the Russian Federation, took a massive kicking early on as its shares slid 37% as investors fled en masse.
With many airlines now refusing to fly to Ukraine, British Airways owner IAG (LSE:IAG) was hard hit too as its shares fell 7.5% early on. On the FTSE 250, Wizz Air, which serves central and eastern Europe, was off 8.2%.
6.55 am: FTSE 100 called sharply lower
The FTSE 100 looks set to open the trading week in the red amid mounting worries over Russia's imminent invasion of Ukraine.
The Daily Mail’s front page revealed that Boris Johnson plans a ‘whistle-stop tour’ of Europe in a ‘diplomatic blitz’ to avert war.
The Times, meanwhile, reported that German Chancellor Olaf Scholz is in Kyiv to see President Zelensky of Ukraine, and Moscow tomorrow to meet President Putin.
Jake Sullivan, security advisor to Joe Biden, said “major military action” by Russia could begin very soon. There is a suggestion the tanks could rumble over the border on Wednesday.
The spectre of war pushed the price of crude oil and gas higher, which added to worries over the global rise of inflation.
Last week US consumer prices hit a 40-year high of 7.5%, sending global markets into a two-day funk.
In the aftermath, St. Louis Fed President James Bullard said he favoured a half a percentage point rise in the base rate in March rather than a quarter-point hike.
“Not surprisingly these comments prompted a sharp rise in bond yields across the board, and while other Fed members appear to be more relaxed about recent data, there is little doubt that the possibility of a much more aggressive Fed response on rates is already getting priced into markets,” said Michael Hewson, an analyst at CMC Markets.
However, Bullard’s comments were counterbalanced by the more dovish Mary Daly of the San Francisco Fed who reckons an aggressive approach to inflation could in itself be destabilising.
This caution also chimed with comments at the end of last week, from Loretta Mester of the Cleveland Fed and Raphael Bostic of the Atlanta Fed.
Back here in the UK, it looks likely to be another fairly busy week for corporate news as we await updates from Glencore, BHP and NatWest.
We’ll also receive the UK reading for inflation, which may help inform the Bank of England’s thinking on interest rates policy.
Around the markets
- Sterling US$ 1.3540 (-0.18%)
- Bitcoin US$41,920.40 (-0.37%)
- Gold US$ 1,854.20 (+0.88%)
- Brent crude US$95.46 (+1.08%)