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FTSE 100 closes off the mark after earlier rally runs out of steam

Last updated: 16:50 28 Feb 2022 GMT, First published: 06:40 28 Feb 2022 GMT

Goldman Sachs -
  • FTSE 100 loses 31 points
  • Russian stocks under the hammer (& sickle)
  • Sanctions have teeth

4:50pm: FTSE loses ground amid market turbulence

The UK blue chip index closed 31.21 points or 0.42% lower at 7,458.25 on Monday despite a midday rally.

IG's Chris Beauchamp believes a more difficult period for the FTSE 100 seems to beckon.

"After weeks of holding up better thanks to banks and commodity firms, these sectors are prompting a more durable decline," Beauchamp noted.

"BP’s losses are temporary, and at least the losses in firms associated with Russia will result in a more interesting quarterly shakeup. But a potentially softer outlook for monetary policy means financial stocks might continue to give back some of their recent gains.”

4:10pm: FTSE 100 plays Russian roulette with five bullets in the chamber

Polymetal International PLC (LSE:POLY) remains comfortably the worst blue-chip performer today after the momentous events of the weekend.

The mining company has, however, recovered to 341.3p, down 57% in the day, after slumping to 290p at one point from Friday’s closing price of 798.4p.

The collapse of the ruble today after a ban from the SWIFT financial system for several Russian banks has made Russian stocks the lepers of the London stock exchange, except most people have sympathy for lepers.

“We're seeing widespread risk aversion once more on Monday after new severe sanctions were levied against Russia over the weekend," said OANDA’s Craig Erlam.

“The response to previous sanctions was underwhelming, to say the least, but the latest batch undoubtedly has the teeth that the others lacked. That's been most clearly evident in the FX markets, where the rouble plunged more than 30% to record lows and that could have been much worse but for swift action by the central bank.

“An emergency rate hike - raising the key rate from 9.5% to 20% - alongside other measures, has enabled the rouble to pare those initial losses but the currency remains under severe pressure. The latest sanctions are hard-hitting and will weigh heavily on the economy and that's before we see the second-round effects,” he added.

Entering the last half-hour of trading, the FTSE 100 was down 66 points (0.9%) at 7,423.

3.45pm: It all kicks off in the world of football

Shares in travel firm TUI AG (LSE:TUI) were down 5.9% at 237.5p on Monday afternoon and not just because of unease caused by events in Ukraine.

The company’s chief executive has written to staff assuring them that management is happy having Putin supporter Alexey Mordashov as its biggest shareholder.

News agency reports indicate the European Union has been mulling sanctions against Mordashov.

Meanwhile, Roman Abramovich has followed up his gesture in handing over stewardship of Chelsea football club to the trustees of the club’s charitable foundation by offering to act as peacemaker between Russia and Ukraine.

The FTSE 100 was down 98 points (1.3%) at 7,391.

2.50pm: US markets open lower

US markets have opened lower with the Nasdaq faring best of the three main indices.

The Nasdaq Composite was down 110 points (0.8%) at 13,584 as US investors reacted to the weekend’s events in eastern Europe and the West’s response to them.

The Dow Jones 30-share index was down 392 points (1.2%) at 33,661 while the broader-based S&P 500 was 44 points (1.0%) at 4,341.

In London, the FTSE 100 is rallying again and has pared its loss to less than 100 points; the index is down 95 points (1.3%) at 7,395.

Associated British Foods PLC (LSE:ABF) was falling harder than most blue-chips after its pre-close period trading update.

The shares shed 3.3% at 1,894p despite the foods and clothing group saying sales and underlying profit at the halfway point of its financial year are expected to be ahead of pre-Covid levels and “strongly ahead” of last year.

“A strong showing by Primark helped ABF guide for improved sales and operating profits at the half-year mark. The group’s been bogged down by inflation across all of its businesses, but cost-saving efforts at its retail arm were enough to keep rising prices from denting performance significantly,” said Laura Hoy at Hargreaves Lansdown.

“Primark will feel the sting of inflation in the second half, but at that point price hikes in other parts of the business will be filtering through. The result is management’s unchanged optimism for ‘significant progress’ in underlying profit growth for the full year.

“Therein lies the benefit of such a highly diverse business. ABF is best known as Primark’s parent, but the group’s also in charge of several other food-related businesses. The structure is a big part of the reason the group was able to come out of the pandemic with very few scars and is a strength that should carry it through the current inflationary environment as well,” she added.

2.00pm: Rally runs out of steam

The lunchtime rally has fizzled out and the Footsie is back to sporting a triple-digit fall.

London’s index of heavyweight shares was down 125 points (1.7%) at 7,364, just a couple of points above its low point for the day.

It’s not all about Ukraine today, however, and logistics firm Bunzl PLC (LSE:BNZL) is one of those making headway, advancing 7.1% to 2,955p after it released full-year results this morning.

“The main feature of trading in 2021 were the recovery in underlying sales as retail and hospitality venues reopened, offset by declining sales of Covid 19 related products. It also benefitted from product cost inflation that it was able to pass on in most cases. Base business sales were broadly in line with 2019 levels, driven in particular by North America and Latin America. The acquisitions made this year and last added c4% to revenue,” said Edison Group’s Andy Murphy.

“2022 has started well and the company is upgrading guidance from that given at the last pre-close statement, despite some uncertainties relating to product and operating cost inflation. It also expects the margin to be slightly higher than the historical levels as the mix of sector and product sales transitions. Ahead of the consensus upgrade, Bunzl trades on a PER of 17.8x in the current year and yields 2.1%. It is probably worth noting that the dividend has been raised every year of the last 24 years reflecting the underlying strength of the business,” Murphy said.

12.50pm: Investors turn to gold (not literally)

With equities in retreat and foreign exchange markets in turmoil, investors have predictably turned to gold as a haven investment.

The yellow metal has risen to US$1,909.10, up US$21.40 (1.1%) on the day, although it remains below the high point of last week, which occurred on a Wednesday.

"Gold hit a 20 month high on Wednesday of US$1940, driven mainly by the Russian invasion of Ukraine. There has been significant volatility since but gold is hovering around the US$1,900 mark," said Hector McNeil, co-chief executive officer and co-Founder of HANetf.
 
"The price of gold often rallies during times of geopolitical uncertainty. For instance, following the killing of Iranian general Qasem Soleimani in early 2020, the price of gold hit levels it had not seen since 2013. The war in Ukraine, however, has the potential to be much more destabilising to financial markets.

"The conflict is potentially escalating and so too are the severity of sanctions placed on Russia. One economic historian has described the sanctions on Russia as “a declaration of all-out financial warfare against Russia". 
Therefore it is expected that conflict will continue to exert significant uncertainty on the equity and bond markets. As an insurance asset, gold comes into its own in periods of uncertainty such as this.

"There is also pressure on energy markets and the likelihood of disruptions to supply. Higher energy prices were already the principal driver of inflation in Europe prior to the outbreak of the war. Energy prices have a significant weight of almost 10% in the European Harmonised Indices of Consumer Prices (HICP). Therefore higher energy prices will likely result in higher short and medium-term inflation," McNeil continued.

"There is also the risk of higher inflation through agricultural prices. Russia and Ukraine combined make up 27.9% of global wheat exports. If there are supply disruptions, this would have an impact on prices and consequently on inflation. Together with the impact from energy prices, this could lead to significant inflationary pressure. This plays into the historic uses for gold as a hedge for inflation and also market uncertainty.

"A final way potential impact is on the supply of gold itself. Russia was the world’s second-largest supplier of gold in 2021. Should they be unable or unwilling to export gold, this could have a negative impact on available supply and potentially impact gold prices.

"The Royal Mint Physical Gold ETC – RMAU is a potential way to implement a gold investment. It has arguably the most secure way to hold physical gold as it is held by a sovereign mint versus similar Gold ETCs where the gold is held in custody at banks in London and New York," McNeil concluded.

The FTSE 100 was down 59 points (0.8%) at 7,430.

12.10pm: US stocks to open mixed

US stocks are expected to open mixed as officials from Ukraine and Russia meet in neighbouring Belarus to try to reach an agreement to end the conflict that escalated over the weekend as Russia’s offensive on Ukraine was met with fierce resistance.

Futures for the Dow Jones Industrial Average declined 1.25% in Monday pre-market trading, while those for the broader S&P 500 index rose 0.79% and the tech-heavy Nasdaq added 0.13%.

The Russian ruble plunged by almost 30% to trade at a new record low of 106 rubles per dollar after Western countries blocked a list of Russian banks from the Swift global payment system. Fears that oil supplies could be disrupted sent Brent crude 5% higher and European gas futures rose by more than 60%. Haven gold moved back above US$1,900.

US markets ended with significant gains on Friday as Russia agreed to talk to Ukrainian diplomats amid the geopolitical crisis.

The Dow Jones ended 2.51% higher at 34,059, while the S&P 500 added 2.24% at 4,385 and the Nasdaq Composite rallied with gains of 1.64%, ending at 13,695.

In London, the FTSE 100 was down 90 points (1.2%) at 7,400.

11.20am: Ceasefire talks begin in Belarus

Talks between Ukraine and Russia have begun in Belarus, according to reports.

Ukraine has apparently asked for an immediate ceasefire and the withdrawal of Russian troops from Kyiv.

The FTSE 100 has trimmed some of its earlier losses and is down 89 points (1.2%) at 7,401.

Proving it’s an ill wind that blows nobody any good, BAE Systems PLC (LSE:BA.), up 14% at 741.6p, is the best blue-chip performer. The defence firm is expected to benefit from an increased emphasis on rearmament after the Russian invasion of Ukraine.

10.50am: Russian stock market not open today

To no one’s great surprise, the Russian stock market is shut today.

Meanwhile, stocks with Russian connections continue to get the works in London.

Outside of the FTSE 100, Petrapavlovsk PLC, the Russian gold miner, is off 26% at 7p; Wizz Air Holdings PLC (AIM:WIZZ), the airline that serves eastern European destinations (including Ukraine) is down 11% at 3,199p.

The FTSE 100 was down 105 points (1.4%) at 7,384, the same as it was 40 minutes earlier so equity prices appear to be stabilising.

There are some massive losers on the FTSE 100 headed by companies with strong Russian connections, while banks are also getting a kicking.

London’s index of heavyweight shares is down 105 points (1.4%) at 7,384.

Polymetal International PLC (LSE:POLY) has plummeted 54% to 367.5p and Evraz PLC (LSE:EVR) has plunged 26% to 150.7p as the rouble plunges following the imposition of sanctions over the weekend.

“The Russian ruble plunged by almost 30% to trade at a new record low of 106 ruble per dollar after Western countries blocked a list of Russian banks from the SWIFT global payment system,” observed Hussein Sayed, the chief market strategist at Exinity.

European banks are tanking after the West oxymoronically stopped dragging its feet on expelling Russian banks from the SWIFT system.

In London, HSBC PLC (LSE:HSBA) is down 4.9% at 511.4p, Natwest Group PLC is 4.5% lower at 225.1p, Lloyds Banking Group PLC (LSE:LLOY) is off 4.1% at 47.65p and Barclays PLC (LSE:BARC) is 4.3% weaker at 180.78p.

“Fears that oil supplies could be disrupted sent Brent crude 5% higher and European gas futures rose by more than 60%. The decision to cut Russia from the global payment system could possibly halt gas supplies to Europe and lead to dangerous economic consequences on the continent and the rest of the world,” Sayed added.

Victoria Scholar, the head of investment at interactive investor, noted that BP PLC (LSE:BP.) has shed 7% after announcing plans to divest its 19.75% stake in Russian oil giant Rosneft (AIM:ROSN), costing the British oil giant up to US$25 billion as the company’s chief executive officer (CEO) Bernard Looney steps down from Rosneft (AIM:ROSN)’s board.

“BP’s potential US$25 billion from exiting Rosneft (AIM:ROSN) highlights the stress facing companies with heavy exposure to Russia. It is becoming clear that attempts by the US and Europe to disentangle itself from Russia and freeze out its economy will have significant consequences for Western companies and economies too; however the downside for BP was capped by sharp gains in oil prices, which should continue to support its bottom line if Brent continues its upward trajectory,” she noted.

The price of Brent crude is currently US$4.94 (5.2%) higher at US$99.04 a barrel. Feel free to nip out and fill up the tank (unless you have an electric vehicle) after reading this update.

8.20am: Could've been worse (for the markets)

It was a sharp fall at the open, but not quite the decline predicted.

The FTSE 100 started 70 points in the hole at 7,422.55 after a weekend of further conflict in Ukraine that was coupled with some Putin sabre rattling as Russia put its nuclear forces on high alert.

All this could be moot if border talks between delegates from Moscow and Kyiv yield some sort of ceasefire.

Ramped up sanctions have heavily hit the rouble, while Russia has more than doubled its interest rates.

The country’s effective expulsion from the banking communications system Swift has the potential to hit it hard financially too.

On the market, BP shares were 4% lower in the opening exchanges after the oil giant said it would be getting rid of its 20% stake in the Russian state-owned oiler Rosneft (AIM:ROSN).  

6.55 am: Nuclear wobbles predicted 

The FTSE 100 looks set to open sharply lower after Russia's Vladimir Putin put the country’s nuclear deterrent force on high alert.

This was the latest worrying twist in the Ukraine conflict with blasts heard in the country's capital Kyiv and second city Kharkiv overnight.

The powder keg atmosphere is unlikely to lend itself to a constructive exchange between delegates from Russia and Ukraine, who are expected to meet on the northern border with Belarus later today.

With new sanctions imposed, including Russia’s removal from the Swift secure messaging system for banking, the rouble has crashed to a record low of one US cent, while Brent crude remained above US$100 a barrel. Goldman Sachs (NYSE:GS) warned over the weekend oil prices could hit US$125.

BP, meanwhile, has said it will offload its near 20% stake in Russia’s state-owned oil giant Rosneft (AIM:ROSN).

“There are no good outcomes to this crisis,” warned Neil Wilson, analyst at Markets.com.

“Either Russia wins what would now be a very bloody war (as opposed to the quick Blitzkrieg), and Russian tanks are parked on Nato’s eastern flank with Putin emboldened.

“Or, we need to think of the consequences of Russia losing this war; Putin chased back to his dacha, badly beaten?

“What does the cornered bear do then? We are in uncharted territory with a hot war in Europe where one of the protagonists has nuclear weapons.

“We pin our hopes on talks leading to an end to the bloodshed on both sides…but the geopolitical order is becoming more spiky.”

Around the markets

  • Pound US$1.3361 (-0.36%)
  • Bitcoin US$37,761.40 (+0.12%)
  • Gold US$1,911.90 (+1.29%)
  • Brent crude US$102.62 (+4.79%)

6.50am: Early Markets - Asia / Australia

Asia Pacific markets were mixed on Monday as the U.S. and Western allies announced fresh sanctions on Russia, prompting fears that energy supplies will be affected.

Brent crude, the international oil benchmark, gained about 5% to trade at US$105 per barrel.

The Russian rouble dropped to as low as 119 per US dollar in early trading, tumbling beyond its previous low of 90 roubles per US dollar. It was last trading at 105.

Japan’s Nikkei 225 gained 0.19% and South Korea’s Kospi rose 0.84%.

The Shanghai Composite in China lifted 0.13% while Hong Kong’s Hang Seng index dipped 0.87%.

Australia’s S&P/ASX200 ended the day 0.7% higher and ended the month up 1.1% after interim earnings showed the resilience of the traditional pillars of the economy – mining, resources and banking.

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