- FTSE falls 91 points
- Commodity prices rising
- Clencore the day’s top performer
4.45pm: Ukraine-Russia war rages on
The FTSE 100 fell Thursday as peace talks between Ukraine and Russia showed little progress on key issues as commodity prices moved higher.
Markets have been tied closely to the conflict and have been inversely correlated with energy prices, which have been on a tear higher during the Russia-Ukraine war.
Also, the market tanked despite that European Central Bank's decision to keep interest rates at 0%
The FTSE 100 index closed 91.63 points, or 1.27% lower, at 7,099.09.
Chris Beauchamp, chief market analyst at online trading group IG, said that after Wednesday’s big rally bullish sentiment still remains fragile.
“Some of the ground gained yesterday has been given back, with most of the FTSE 100 tending to the downside,” he said.
“It looks like yesterday’s bounce might have been a bit of a one-hit wonder, a product of short covering and thinner liquidity. Nothing over the past 24 hours really suggests a major change in tone, and for now the downside case continues to prevail, bolstered by continued fears about inflation and the shift towards hawkishness in central bank thinking.”
The top gainer was Glencore PLC (LSE:GLEN), which increased by 6% to 498.15p.
4.00pm: ECB rate decision a drag
Stock markets have remained firmly in the red following the European Central Bank's decision to keep interest rates at 0%, says Chris Beauchamp, chief market analyst at online trading platform IG.
“Hopes that Wednesday’s recovery would be followed by further gains have been dashed for now. Bullish sentiment remains fragile at best, making any longer-term rally a dicey proposition.”
“It doesn’t look like markets got what they wanted from the ECB. Instead of a more conciliatory tone, the bank has shifted in a hawkish direction, confirming its decisions to wind down its asset purchase programme and look towards hiking rates in due course.”
“While there is plenty of scope for this to be upended, for now the response of European stocks has been to head lower. The euro isn’t exactly keen on it either, despite an initial bounce, and from the looks of it the tone of the European session is decidedly risk-off.”
“Some of the ground gained yesterday has been given back, with most of the FTSE 100 tending to the downside.”
“It looks like yesterday’s bounce might have been a bit of a one-hit wonder, a product of short covering and thinner liquidity.”
“Nothing over the past 24 hours really suggests a major change in tone, and for now the downside case continues to prevail, bolstered by continued fears about inflation and the shift towards hawkishness in central bank thinking.”
3.40pm: US inflation shouldn't spook the market
US inflation hit 7.9% in February, with Caleb Thibodeau, a senior associate of global capital markets for Validus Risk Management believing it is unlikely to change any market expectations, given inflation was expected to be 8%.
“The release marks another 40-year high, but markets were prepared and we saw numbers line up closely to the forecast survey this time around.”
“Unsurprisingly, energy prices provided a major contribution this month and are likely to receive a lot of attention. We have seen staggering, and perhaps now peaked, volatility in the crude oil market, acting as the main driver. While only a 6.5% weighting in the consumer price index (CPI) basket, energy was up over 25%, contributing close to 1.7% to the total 7.9% headline print.”
“While previous expectations had posited year-on-year CPI to roll over towards the end of the first quarter, persistence in goods inflation and in particular the recent commodity shock may push the eventual peak further forward. It is important to note that services make up 60% of the CPI basket and only saw a 4.4% increase, meaning the CPI is being largely driven by goods inflation.”
“The concentration of CPI gains in the goods and commodity categories is sure to hurt the spending power of lower-income consumers more acutely, at places like the grocery store, the gas pump, and the clothes shop. Services remain under little pressure in areas like shelter, transportation and medical relatively speaking, with no remaining traces of the re-opening demand shock.”
“Political pressure and attention are higher than ever on reducing inflation, having made the State of the Union address and topping public polls as the greatest concern of the American public. It will take a formidable change in circumstances to steer the Fed away from a hike next Wednesday and at all subsequent Federal Open Market Committee meetings this year.”
3.10pm: Peace talks go nowhere
Michael Hewson, chief market analyst at CMC Markets believes yesterday’s rebound was a “big leap of faith,” as Footsie loses 57 points with peace talks between Russia and Ukraine unsurprisingly going nowhere.
“Yesterday’s market rebound turned out to be as big a leap of faith as most people supposed it might be, as today’s peace talks in Turkey between Ukraine foreign minister Kuleba and Russian foreign minister Lavrov got underway, and then finished just as quickly.”
“It soon became rapidly apparent that Lavrov had no mandate to decide on anything, and consequently the talks turned out to be every bit as useful as a chocolate teapot, with the Russian Foreign Minister seemingly more interested in trying to justify yesterday’s bombing of a children’s hospital in Mariupol than indulging in proper diplomacy.”
“There seems to be a widespread naivety on the part of markets, as well as some politicians that Russia is interested in going down a diplomatic path, when all its actions to date appear to suggest it only has one agenda, and it’s not a peaceful one.”
“Consequently, we’ve seen a little bit of the gloss come off yesterday’s rebound, although today’s weakness hasn’t come anywhere close to reversing the rally from yesterday. This would suggest that what we’ve seen these past few days is a resetting of expectations about what comes next, with investors largely unsure whether to get back in, or wait for another dip lower.”
2.55pm: Goldman Sachs (NYSE:GS) (Goldman Sachs (NYSE:GS)) to wind down Russian business
Wall Street giant Goldman Sachs (NYSE:GS) has pulled out of Russia, becoming the first major Wall Street bank to do so.
It took the decision to end operations in Russia to comply with “regulatory and licensing requirements.”
2.39pm: M&S boss to step down
Marks & Spencer boss Steve Rowe will be stepping down from his role on May 25, although he will remain in an advisory role for 12 months to advise the new leadership.
Rowe has been in his position for six years, overseeing "far reaching changes in organisation structure and management," according to a statement.
Stuart Machin will become chief executive and will take on responsibility for day-to-day leadership of the business and the executive committee.
Machin will continue to have oversight of his current portfolio of responsibilities, which includes the leadership of its food business, as well as operations, property, store development and technology
2:26pm: Rio Tinto to cut business with Russia
Footsie mining company Rio Tinto PLC (LSE:RIO) will sever all ties with Russian businesses, becoming the first of the major mining companies to do so in response to Russia’s invasion of Ukraine.
“Rio Tinto is in the process of terminating all commercial relationships it has with any Russian business,” the company said, according to newspaper reports.
The announcement raises questions about the future of Rio Tinto’s majority-owned Queensland Alumina Ltd, one of Australia’s largest alumina refineries, which is 20% owned by Russia’s Rusal, the Sydney Morning Herald reported. The joint-venture agreement between Rio Tinto and Rusal has been placed under immediate review, the paper said, citing sources.
2.10pm: US inflation reaches 7.9%
As expected, the US inflation rate rose to 7.9% in February, its highest level since 1982, roughly in line with previous expectations.
The US Inflation Rate rises to 7.9%, its highest level since 1982. Core Inflation (excludes food/energy) rises to 6.4%, also the highest we've seen since 1982.
Charting via @ycharts pic.twitter.com/YNtwUnLmNh
— Charlie Bilello (@charliebilello) March 10, 2022
Soaring gas prices have left analysts believing that number will continue to climb further and above 8%, given next month’s figure will include the rocketing prices of crude oil because of war in Europe and subsequent sanctions on Russian imports.
“Rising energy prices pushed the CPI inflation rate up to a 40-year high of 7.9% in February and, given the spike in crude oil and gasoline prices since Russia’s invasion of Ukraine, it will climb well above 8% in March,” said Paul Ashworth, chief US economist at Capital Economics.
He does add, however, that “gradually easing supply constraints and more favourable base effects mean that March should be the peak, with both headline and core inflation falling to nearer 3% by the end of this year.”
In such times of volatility, John Leiper, the chief investment officer at Titan Asset Management said investors should look at “real asset exposure across investment portfolios” to hedge against inflation.
“We continue to like commodity equities and dividend paying equities within a diversified multi asset class portfolio.”
1.40pm: Inflation and energy a concern for most companies
60% of companies are concerned about their businesses in the coming months, with volatility in the market showing no signs of easing, according to the Office of National Statistics.
The top two concerns for companies were inflation impacting the cost of goods and services, as well as soaring energy prices as tensions in Ukraine continue.
According to the data, over a third of construction companies said good price inflation was a real concern for them.
Whether that will include Footsie listed house building firms Barrat Developments, Persimmon and Taylor Wimpey remains to be seen.
Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown said the situation has improved, with many firms “getting back up on their feet following the shock of the pandemic as restrictions have lifted.”
“But testing times are ahead, as some of the most recent hikes on global exchanges have yet to feed through to company costs, so many firms are bracing themselves for a fresh bruising round of rising prices.’’
1.03pm: ECB keeps interest rates at 0%
The European Central Bank (ECB) has, as expected, left interest rates unchanged at 0% at its policy meeting today.
Its quantitative easing programme is also expected to wind down faster than expected, possibly ending in the third quarter.
“Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual,” the ECB said in a statement.
“The path for the key ECB interest rates will continue to be determined by the Governing Council’s forward guidance and by its strategic commitment to stabilise inflation at 2% over the medium term.”
“Accordingly, the Governing Council expects the key ECB interest rates to remain at their present levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon.”
“The ECB is trying to strike a balance between two extremes today; the continued rise in inflation and the chasm of uncertainty around growth due to the war in Ukraine.,” said Claus Vistesen, chief Eurozone economist at Pantheon
“Today’s European Central Bank decision came as music to the ears of EUR bulls,” said Ima Sammani, FX Market Analyst at Monex Europe
“With the Russian invasion of Ukraine having materially changed the eurozone risk profile in a matter of weeks, the last thing markets expected was for the ECB - which is usually very cautious around its wording - to come out with a definitive announcement of a faster taper to their quantitative easing programme.”
“Although the relevant caveats have been installed given the increased level of risk to forecasts, the central bank suggests APP will end in the third quarter instead of the fourth quarter, while at the same time it dropped the wording that it could lower rates in the future.”
12.30pm: Inflation to hit commodities and markets
Gold retreated below US$2,000 to US$1,975 before recovering and climbing back above the historical key level.
The price has rocketed by nearly US$200 so far this year, flirting with the all-time high of US$2,074.88, as the appetite shifted away from riskier assets to traditional havens during times of huge uncertainty.
“Gold prices have experienced an intense sell-off for two main reasons,” according to Naeem Aslam, a market analyst at AvaTrade.
“Firstly, the fact that traders have started to develop an appetite for riskier assets has taken their focus away from gold's ultimate risk-off asset.”
“Secondly, gold prices went too far and too quick. Our analysis mentioned yesterday that gold prices near their record might make many traders adopt a more cautionary approach.”
He adds that the US inflation reading, expected later today but anticipated to rise to 8% is the “most critical reading for traders today.”
“Higher inflation reading may bring more interest in gold among traders and investors; however, at the same time, it also increases the odds of an aggressive monetary policy approach from the Fed.”
Global markets will not be immune to US inflation.
“A higher than expected reading could lead to a further fall in global markets, as investors may price in aggressive monetary policy from the Federal Reserve,” said Marcus Sotiriou, an analyst at GlobalBlock.
12:00pm: US preview
US stocks are expected to open lower, reversing some of Wednesday’s strong recovery gains, as the foreign ministers of Russia and Ukraine hold talks in Turkey as Moscow’s assault on its neighbor enters its third week.
Futures for the Dow Jones Industrial Average declined 0.87% in Thursday pre-market trading, while those for the broader S&P 500 index shed 0.83% and the tech-heavy Nasdaq fell 1.13%.
US stocks closed with significant gains Wednesday as the S&P 500 recorded its best day since June 2020, while commodity prices fell amid the ongoing war between Ukraine and Russia.
The Dow surged 2% to 33,286, while the S&P 500 added a significant 2.57% to 4,278, and the Nasdaq gained 3.59% to 23,256.
Ahead of talks in the southern Turkish city of Antalya today, Ukraine’s Foreign Minister Dmytro Kuleba said his expectations of the talks were low, while Ukraine’s foreign ministry said Kyiv was seeking an immediate end to the war against Ukraine by Russia.
“Markets rallied strongly as the oil price weakened and as sentiment received an overdue boost, following hopes of some progress in diplomatic talks between Russia and Ukraine,” commented Richard Hunter, head of markets at interactive investor.
“However, the sustainability of these relief rallies remains delicately poised. The conflict is ongoing and the road to resolution remains unclear, with any further military developments likely to unsettle sentiment immediately. With such an uncertain outlook, many possible scenarios remain on the table and, of course, any diplomatic developments will be watched with in a keen eye.”
Oil declined by the most in two years on Wednesday following reports that OPEC member the United Arab Emirates said it supported an increase in output after the market was sent into turmoil as a result of sanctions on Russia, the second-largest producer of oil.
“Indeed, the oil price dropped by as much as 17% overnight before staging a small recovery, following reports that the United Arab Emirates would support an increase of oil output via its membership of OPEC,” Hunter added. “Despite the drop, the oil price remains up by 47% in the year to date, mitigating but not eliminating the additional inflationary concerns which the spike has prompted.”
11.30am: Shell expects further writedowns
Shell PLC (LSE:SHEL, NYSE:SHEL) said it expects a further US$400mln writedown in Russian downstream assets, on top of the US$3bn it had previously announced.
The British oil and gas company mentioned the US$3bn writedowns in an announcement on 28 February, when it said it would be quitting its projects in Russia.
That included its ventures with energy company Gazprom, the Sakhalin 2 liquefied natural gas plant and the Nord Stream 2 pipeline project.
"It is expected that these decisions ...will impact the carrying value of the related assets and lead to recognition of impairments in 2022," Shell said in its annual report on Thursday.
Western energy companies have been leaving Russia on mass, with BP saying it will be ending its three-decade stake in Rosneft (LSE:ROSN), although France's TotalEnergies said it will be sticking with its Russian investments for now.
10.50am: Seven oligarchs hit with sanctions
Seven Russian oligarchs, including Evraz PLC (LSE:EVR) majority shareholder Roman Abramovich and Rosneft (LSE:ROSN) chief executive Igor Sechin were hit with sanctions by the UK government this morning.
Evraz was the biggest percentage faller on the Footsie, plummeting 18% and changing hands at 82.8p before trading was suspended to protect shareholders.
Shares in the steel and mining company have tanked since the turn of the year as Russia placed soldiers on the border of Ukraine and have continued to plummet as war broke out.
Others sanctioned include Sechin, chief executive of Rosneft (LSE:ROSN), although this should have little impact on BP, which has a19.75% shareholding in the Russian energy company but has vowed to sell it.
Alexei Miller, chief executive of Gazprom, Nikolai Tokarev, president of pipeline company Transneft, Dmitri Lebedev, chairman of the board of Bank Rossiya, Oleg Deripaska, who has stakes in energy company En+Group and Andrey Kostin, chairman of VTB bank have all been sanctioned, with all their UK assets frozen.
10.20am: Fuel and diesel hit record highs
Fuel prices reached record highs as Russia's continued invasion of Ukraine disrupted global oil markets and piled further pressure on supply chains.
The average cost of a litre of petrol in the UK was 159.6p, while diesel surged to a never-seen before 167.4p.
In the last three to four weeks there have been new highs in fuel prices on most days.
9.15am: Investors await the outcome of peace talks between Russia and Ukraine
It has been a downbeat first hour of trading for UK blue-chips with investors awaiting the outcome of Russia-Ukraine peace talks in Turkey.
The FTSE 100 was down 54 points (0.8%) at 7,137, despite yesterday’s star performers, Polymetal International PLC (LSE:POLY) and Evraz PLC (LSE:EVR), continuing to rally, with gains of 16% and 3.0% respectively.
The “Early Morning Reid” team at Deutsche Bank said it is another pivotal day ahead for investors, with many important events taking place.
“First, the Russian and Ukrainian foreign ministers will be meeting in Turkey, marking the first cabinet-level meeting between the two sides since the invasion began. Second, we’ll get some idea of how the ECB are viewing matters with their policy decision at 12:45 London time, followed by President Lagarde’s press conference 45 minutes later. Third, we’ve got the US CPI release at the same time as Lagarde begins her press conference, which will be the final print before the Fed are expected to commence their hiking cycle next week. And finally, EU leaders are meeting in Versailles later on, amidst growing speculation about whether they might move further on fiscal policy,” Deutsche said.
Spirax-Sarco Engineering (LSE:SPX) PLC, which sneaked into the FTSE 100 when nobody was looking, has reported a record performance in 2021 and said it currently expects strong growth in 2022.
The shares rose 2.1% to 11,565p on the results, which included a 15% hike in the dividend.
Also on the up following a trading update was packaging firm Smith (DS) PLC, which said volume growth and continuing packaging price increases more than offset ongoing input cost increases in the third quarter of the company’s fiscal year.
The shares rose 1.5% to 320.9p as the company confirmed it is trading in line with expectations.
8.30am: Oil prices see-saw
The FTSE 100 opened lower on Thursday, in sharp contrast to some expectations after a blockbuster session on Wall Street overnight and positive moves in Asia this morning.
In synch with the rest of Europe, London's share benchmark dropped 65 points or 0.9% to 7,125.55 in the first 25 minutes of trading.
Despite the optimism 24 hours earlier, which Deutsche Bank analysts put down to "indicators from Ukraine that there could be a basis for talks to continue with Russia, alongside signals about a potential boost to OPEC+ output".
The more sombre tone in Europe seemed to follow news of Russia's destruction of a hospital in besieged Ukrainian city of Mariupol, which President Zelensky condemned the attack as a “war crime”.
HSBC PLC (LSE:HSBA) was bottom of the list, down more than 3%, just below construction supplier CRH PLC (LSE:CRH).
Other Asia-focused and financial names were not far behind, including Legal & General Group PLC (LSE:LGEN), Prudential PLC (LSE:PRU), and Burberry Group PLC (LSE:BRBY).
Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.) were also a heavy weight on the index.
After the quick U-turn from yesterday's rally, market analyst Richard Hunter at Interactive Investor said, "the sustainability of these relief rallies remains delicately poised. The conflict is ongoing and the road to resolution remains unclear, with any further military developments likely to unsettle sentiment immediately. With such an uncertain outlook, many possible scenarios remain on the table and, of course, any diplomatic developments will be watched with in a keen eye.
"In addition, until such time as it becomes possible to gauge the full economic impact of the conflict, concerns over the derailment of global growth will persist, exacerbated by the heightened levels of inflation which were in place even before the beginning of the conflict. The imminent announcements from the major central banks will prove pivotal in near term sentiment, with an expectation that there will be some softening of the hawkish tones which had recently been promoted in view of the need to counter inflation."
6.45am: Rally expected
The FTSE 100 was expected to rally further after Wednesday's big gain but geopolitical, commodity and company announcements are coming thick and the recent rollercoaster looks set to continue.
Financial spread betters had Footsie up 27 points an hour before trading adding to yesterday’s huge bounce-back that saw 226 points or 3.3% added at 7,190.
US and Asia markets also surged ahead overnight buoyed by wild swings in the oil price as major producer the United Arab Emirates said it supported increasing production.
Brent crude dropped 17% at one point only to bounce back and then slide again.
"These markets are kind of insane right now: More than just a gap filled for crude – it’s the kind of market that will cut you up in both directions,” said Neil Wilson at markets.com.
"Crude remains super volatile and super sensitive to Russia-Ukraine headlines. Biden speaks later so wait and see,” he added.
The UK, meanwhile, is reportedly considering a U-turn on fracking to increase domestic supplies of gas
Liz Truss, the Foreign Secretary, is said to be leading a push in the Cabinet to allow the controversial production method to increase the UK's energy security.
On the economic front, inflation dominates the day with the latest figures from the US expected in the afternoon.
Prices have been soaring across a range of commodities due to the Ukraine conflict and economists are predicting more big US CPI numbers.
“Market participants broadly expect yet another record-breaking inflation print this Thursday," said Deutsche Bank.
"Inflation fixings imply a 7.85% YoY print, in between consensus level(7.86%) and YoY(7.80%) forecasts. Inflation fixing market is now pricing a protracted period of elevated price pressure,” said the bank's economists.
Capita, DS Smith and US inflation vie for attention on Thursday
It is also another big day for UK company announcements with Capita, DS Smith, Balfour Beatty and National Express among the names due to issue updates.