On this note, we are wrapping up for the day. Thank you for reading -- we’ll be back tomorrow. Good night! - JK
Reuters has unearthed an error made by Boris Johnson’s government when it slapped sanctions on five private Russian banks, including Rossiya Bank, which the government said was “privately owned by elite Russian billionaires with direct links to Putin” (the two largest state banks were spared from sanctions, for now).
The sanctions document mistakenly listed Rossiya Bank’s address as “Neglinnaya, 12 Moscow, 107016, Russia”. It is, in fact, is the address of Russia’s central bank –– known in Russian as “Bank Rossiya,” which was founded in 1860.
Rossiya Bank, the private bank created in 1990, is based in St Petersburg. This is thought to be an error - there is no suggestion that the central bank has been sanctioned, Reuters said.
Updated
Our economics editor Larry Elliott has written this analysis: Ukraine crisis: sanctions against Russia come at a cost to the west.
After all the tough talk of the past month, the sanctions imposed on Russia by the west are unlikely to lose Vladimir Putin much sleep. The response to Boris Johnson’s announcement that five of the less important Russian banks and three individuals would be targeted was: is that it?
The most dramatic news was Germany’s decision to halt approval of the Nord Stream 2 gas pipeline from Russia to western Europe. That will have an impact, but may end up affecting Germany more than it does Russia.
The message from western capitals was that it was the plan all along to start small and then ratchet things up if Putin refuses to back down. Ben Wallace, the UK defence secretary, said there were several options to choose from.
Even though things are a bit calmer, tensions remain high. Peter Cardillo, chief market economist at the financial services firm Spartan Capital Securities in New York, told Reuters:
The bottom line is that fear factor remains elevated and until we get some sort of a clearer picture of what Putin may or may not do, the market is just going to stay in a state of confusion.
GAS MARKET: Russia warns that European gas prices will go much, much higher | #Ukraine 🇺🇦 🇷🇺 🔥 https://t.co/exqJVMjmwr
— Javier Blas (@JavierBlas) February 22, 2022
Crude oil prices have given up some of their gains, after Brent crude, the global benchmark, pushed over $99 a barrel this morning. The last time it was at this level was in early September 2014. Brent crude is now trading at $96.95 a barrel, up 1.6% while US light crude is up 2.2% at $93.1 a barrel.
Russ Mould, investment director at the investment firm AJ Bell, said:
Oil and gas shed some of their gains from earlier in the day when it became clear that sanctions would not reach key Russian exports of raw materials (or at least not yet).
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Market summary
Some calm has returned to financial markets, after Russia said it would only recognise the Donetsk and Luhansk territories’ independence within the boundaries that the Moscow-backed separatists currently control, and as Ukrainian president Volodymyr Zelenskiy played down the prospect of a large-scale conflict with Russia.
Asian shares recorded some chunky losses, with Japan’s Nikkei losing 1.7% and Hong Kong’s Hang Seng tumbling 2.7%. The main European stock markets in Germany, France, Spain and Italy all slid more than 2% in early trading but later clawed back most of their losses.
The FTSE 100 index in London closed 11 points lower at 7,495.97, a 0.16%% drop. Germany’s Dax lost 0.4% while France’s CAC slipped 0.16%, and Italy’s FTSE MiB and Spain’s Ibex were flat.
The rouble has recovered from a near two-year low after suffering its biggest one-day drop, of 3.3%, since the outbreak oof the coronavirus pandemic on Monday. The Russian currency fell to 81 against the dollar and is now trading at 79.18.
Russian stock markets also staged a small comeback after earlier losses, with the dollar-denominated RTS index and the rouble-denominated Moex index on the Moscow exchange both rising 1.6% this afternoon.
Shares in Russia’s largest lender Sberbank rose 1.3% (after an earlier gain of 5%) while the second-biggest bank VTB was up 1.7%, after they escaped British sanctions. They were not on the list of five banks that are to be sanctioned by the UK.
However, the two state-backed banks are among a number of Russian companies that have secondary listings in London, and their London-listed shares are still down, albeit not nearly as much as earlier. Sberbank fell 1.4% in London after plunging 13% this morning while VTB has lost 1.6%.
State-backed oil and gas producer Gazprom fell 3.4% after an earlier loss of 8%, while Rosneft ended the day nearly 8% lower and Lukoil closed down 5.3%.
Shares in PAO Novatek, the largest gas producer in Russia not directly controlled by the Russian state, dropped 7.3% in London. Gennady Timchenko, a close ally and friend of Vladimir Putin, is one of three Russian oligarchs who appeared on today’s UK sanctions list, and owns a stake in Novatek.
In total, 31 Russian companies are listed on the London Stock Exchange, to raise money and give international investors easier access.
Two FTSE 100 companies whose assets are based in Russia, the steelmaker Evraz reversed earlier losses and gained 5.4%, while the gold miner Polymetal rose 2.8%.
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Today’s CBI survey revealed that the largest number of British manufacturers plan to raise prices in the next three months than at any point since 1976, underscoring the inflationary pressures hitting the UK economy.
With energy prices rocketing and wages on an upward path, the CBI said four-fifths of firms expect to increase the cost of manufactured goods in the next three months.
Not since the oil shocks of the mid-1970s has such a broad swathe of the manufacturing sector found itself needing to increase prices, pushing a net balance to +77% of firms that say prices will need to rise, up from +66% in January, according to the business lobby group.
The Centre for Economics and Business Research, a UK think tank, is warning on the impact on western living standards, already under pressure, from rising inflation and potentially slower growth as a result of the Ukraine crisis.
Any international action will likely not only add to the current inflationary binge, possibly bringing inflation close to 10% in the main Western economies, but also should slow down growth quite rapidly.
World GDP growth in 2022 had been forecast to be about 4% at the turn of the year. Rising inflation has been edging this down and it might fall as low as 2% with the inflationary spur from the conflict with Russia if severe sanctions cause a much more serious spike in energy prices, pushing oil towards $130 and gas to 300p a therm with corresponding moves in metal prices.
This would mean no growth at all for the rest of the year and possibly with some quarters of contraction so getting close to a recession (on the technical definition of two consecutive quarters with negative growth).
Perhaps the biggest issue that will determine how severely the West is affected by the issues with Russia is whether there is the cohesion and willpower to put up with sanctions on the scale that might eventually affect Russia. The analysis above suggests that action could be costly, particularly for living standards that are already under pressure.
US economy bounces back in February – PMI
Similar to the UK and eurozone, the US economy has bounced back from the Omicron wave this month, according to a monthly survey from IHS Markit.
However, inflation has also picked up: prices charged for goods and services in the US rose at a record pace as companies continued to pass on higher cost burdens to their clients.
- Flash US Composite Output Index at 56.0 (51.1 in January). 2-month high
- Flash US Services Business Activity Index at 56.7 (51.2 in January). 2-month high
- Flash US Manufacturing PMI at 57.5 (55.5 in January). 2-month high
- Flash US Manufacturing Output Index at 52.5 (50.5 in January). 2-month high
Chris Williamson, chief business economist at IHS Markit, said:
The pace of economic growth accelerated sharply in February as virus containment measures, tightened to fight the Omicron wave, were scaled back. Demand was reported to have revived and supply constraints, both in terms of component availability and staff shortages, moderated.
With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture.
The service sector rebounded especially impressively, accompanied by a more muted upturn in manufacturing. Goods producers remain hamstrung by supply shortages which, although easing to the lowest since last May, continued to severely limit production growth, resulting in a further large rise in backlogs of work.
Wall Street (which was closed for Presidents Day yesterday) has opened lower.
- S&P 500 down 23 points, or 0.5%, at 4,325
- Dow Jones down 192 points, or 0.56%, at 33,886
- Nasdaq down 132 points, or nearly 1%, at 13,415
Russian sanctions: who has been hit and who might be next?
My colleague Jasper Jolly writes:
The UK sanctions list cited Timchenko’s shareholding in Bank Rossiya. However, he is also a board member and shareholder of PAO Novatek, the largest gas producer in Russia not directly controlled by the Russian state. Novatek is among 31 Russian companies whose shares are listed on the London Stock Exchange, giving international investors easier access.
The price of its London-listed shares dropped by 8% on Tuesday, a much steeper drop than shares in Novatek’s main listing in Moscow, which fell by only 1.2%, suggesting concerns about the London listing.
Timchenko was the founder of Gunvor Resources, a major commodities trading company based in Geneva. However, Timchenko sold his shares in Gunvor in 2014 when he was sanctioned by the US following Russia’s annexation of the Crimea region of Ukraine.
Bill Browder, a former investor in Russia who campaigns for global anti-corruption laws, described the UK’s sanctions as “pretty tepid if you ask me” and highlighted the absence of Russia’s two biggest state-controlled banks, Sberbank and VTB, in a post on Twitter.
BREAKING: The UK is sanctioning 5 Russian banks (Rossiya Bank, IS bank, General Bank, Promsviazbank, Black Sea bank) and 3 oligarchs: Igor and Boris Rotenberg, and Gennadiy Timchenko. Pretty tepid if you ask me. The oligarchs have been on the US sanctions list since 2018
— Bill Browder (@Billbrowder) February 22, 2022
Where is VTB and Sberbank? Where are the other 50 oligarchs? The ones whose names we can’t mention out of fear of libel.
— Bill Browder (@Billbrowder) February 22, 2022
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GSK: new consumer company to be called Haleon
GSK has revealed that its consumer healthcare business will be called Haleon after its planned spinoff and London stock market listing this summer. Its brands include Sensodyne toothpaste and Voltaren and Panadol painkillers. The drugmaker said:
Haleon (pronounced “Hay-Lee-On”) is inspired by the merging of the words ‘Hale’, which is an old English word that means ‘in good health’ and Leon, which is associated with the word ‘strength’.
The business has grown in size after merging with consumer product portfolios from Novartis and Pfizer, and now generates annual sales of £10bn.
Brian McNamara, chief executive designate of Haleon, said:
Introducing Haleon to the world marks another step in our journey to become a new, standalone company. Our name is grounded in our purpose to deliver better everyday health with humanity and to be a world leader in consumer healthcare. We are on track to launch Haleon in mid-2022 and our business momentum is strong. We look forward to updating investors and analysts more on this at our capital markets event at the end of February.
Emma Walmsley, GSK’s chief executive, reiterated that Haleon had “strong prospects forgrowth, and through listing will unlock significant value for GSK shareholders”. She has been under pressure from the activist investor Elliott Management, a New York hedge fund, to explore a sale of the business, rather than a spin-off.
Our economics editor Larry Elliott has spoken to Kristalina Georgieva, the managing director of the International Monetary Fund. He asked her about Russia and she expressed concerns about the possible impact on the global economy. She said:
It is very concerning. It adds to uncertainty at a time when there is plenty of it, because we are not yet done with the pandemic and because the path to recovery for many countries is a difficult one.
Georgieva said the tension had already had an impact on Ukraine through investors becoming more “hesitant” and said sanctions would have an impact on Russia and neighbouring countries.
I anticipate an impact on Russia and through it an impact on Central Asia and the Caucasus - countries more dependent on economic ties with Russia.
On the impact on the global economy, Georgieva said it would depend on how the crisis unfolded.
I still hope there is a path to avoid a more dramatic impact. A more profound development could put pressure on energy prices to go higher. It is happening at a time when there are more risks for the world economy. Aggravating those risks is in nobody’s interests.
The FTSE 100 index is holding on to its meagre gains, trading 17 points, or 0.2%, higher at 7,501, while Europe’s other main indices are flat to slightly lower.
In London, the Russian miner Evraz fell more than 4% this morning but is now the top riser, up 4.8% at 280p.
Russian miner Evraz started today, down over 4% and worst performer on the FTSE100
— Michael Hewson 🇬🇧 (@mhewson_CMC) February 22, 2022
Now best performer on FTSE100, up 5%.
Not sure that's how this sanctions lark is supposed to work?
Jess Ralston, analyst at the energy and climate intelligence unit, a non-profit organisation, warned about the impact on UK (and European) households:
Gas prices are already surging and with Germany putting a halt to Nord Stream 2, the gas crisis now looks almost certain to last for years, not months.
Given the global nature of gas markets, the UK’s dependence on gas for heating and power will leave UK bill payers on the hook for Putin’s incursion into Ukraine. The government will increasingly feel the pressure to shield households in the long-term by insulating more homes, speeding the switch over to electric heat pumps and getting on with delivering the net zero policies that will wean us off volatile gas and protect us from future crises.
Here is our full story on Germany stopping the certification process for the controversial Nord Stream 2 gas pipeline in reaction to Russia’s recognition of the self-proclaimed republics in Luhansk and Donetsk in east Ukraine, by our man in Berlin, Philip Oltermann.
Germany’s chancellor Olaf Scholz described Putin’s recognition of the Russian-controlled territories as a “grave breach” of international law that broke with decades of agreements between Russia and the west. “The situation today is fundamentally different,” he said.
European natural gas contracts rose 9.5% to €78 a megawatt hour after the announcement from Scholz.
Updated
UK sanctions five Russian banks and three individuals
The UK has imposed sanctions on five Russian banks and three high-net worth individuals, including Vladimir Putin’s close ally Gennady Timchenko, a Russian oligarch and billionaire businessman. The move comes after the Russian president ordered troops into eastern Ukraine last night, and formally recognised the territories of Donetsk and Luhansk as independent states.
The banks are: Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank. The other individuals are Igor Rotenberg and Boris Rotenberg, who together own the SGM Group, which is Russia’s biggest construction firm in the oil and gas industry.
Boris Johnson told parliament:
This is the first tranche, the first barrage of what we are prepared to do.
Any assets they hold in the UK will be frozen and the individuals concerned will be banned from travelling here.
We must now brace ourselves for the next possible stages of Putin’s plan. Putin is establishing the pretx for a full-scale offensive.
Britain has also previously threatened to block Russian companies from raising capital in London and to expose what Johnson calls the “Matryoshka dolls of Russian-owned companies”.
Is that it?
— Caroline Lucas (@CarolineLucas) February 22, 2022
Sanctioning 5 banks and 3 oligarchs suggests the Government cares more about protecting Tory party donations and London’s laundromat than it does about imposing meaningful sanctions against Moscow#Ukrainecrisis
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More on Dave Ramsden’s comments from Joanna Partridge, who is at the National Farmers’ Union’s annual conference:
Inflation, rising energy prices and the intensification of the crisis in Ukraine are among the string of challenges facing farmers and businesses in the current “age of uncertainty”, according to Bank of England policymaker Sir David Ramsden.
Speaking to English and Welsh food producers at the annual conference of the National Farmers’ Union, the Bank’s deputy governor said “on inflation I haven’t seen such a challenging set of circumstances as this”.
He added:
The shock of the decision to leave EU, then the pandemic two years ago, now the energy price shock and intensification of the crisis in Ukraine, are creating uncertainty about where we go next. This does feel like the age of uncertainty.
Fruit grower Ali Capper, chair of English Apples and Pears, told Ramsden that farmers in her sector are facing significantly higher costs this year, and will potentially have to pay workers 40% higher wages in 2022 than a year earlier. He said:
The shocks that are coming in terms of fertiliser prices and other input prices are very, very significant. You are facing much higher inflation rates than I am seeing as a monetary policymaker in the economy as a whole.
He said the best thing which could be done by the Bank - which expects inflation to peak at around 7.25% in April when the impending rise in the energy price cap takes effect - was to stick to its plans to maintain financial stability.
Ramsden, whose mother was raised on a Welsh hill farm, also revealed he had watched TV presenter Jeremy Clarkson’s attempts to become a farmer on series Clarkson’s Farm, where Clarkson was surprised that he was judged to be a key worker during Covid.
Updated
European shares have see-sawed: they are now back in the red with the exception of the UK’s FTSE 100 index, which is 21 points ahead at 7,505, a 0.28% gain.
BOE's Ramsden: more 'modest' rate rises in coming months
Meanwhile, Bank of England deputy governor Dave Ramsden said that there will be further interest rate rises in the months to come as the central bank responds to soaring inflation. But he said the longer-term path was hard to predict because of heightened uncertainty, including the Russia-Ukraine conflict.
Ramsden said in a keynote speech at the National Farmers’ Union’s annual conference:
Some further modest tightening in monetary policy is likely to be appropriate in the coming months.
The word ‘modest’ is significant here though – I do not envisage Bank Rate rising to anything like its pre-2007 level of 5% or above, let alone to the kind of levels we used to see before the monetary policy committee was formed in 1997.
New shocks can arise – we did not foresee the recent rise in energy prices, and as we meet today the crisis in Ukraine is intensifying – and so we should remain humble about the possibility that things might turn out differently.
[This] makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term.
Investors are expecting a further rate hike after the Bank’s next scheduled meeting on 17 March, following two increases in February and December, to 0.5% now. Financial markets have priced in rates rising to nearly 2% by the end of the year.
UK inflation jumped to 5.5% in January, its highest level in nearly three decades, and the Bank expects it to peak at 7.25% in April when a 54% hike in household energy bills comes into effect.
Germany has taken steps to halt the process of certifying the Nord Stream 2 gas pipeline from Russia, chancellor Olaf Scholz said today, as the West started taking punitive measures against Moscow over the Ukraine crisis, AP reports.
Scholz told reporters in Berlin that his government was taking the measure in response to Moscow’s actions in Ukraine.
The decision is a significant move for the German government, which had long resisted pulling the plug on the project despite pressure from the United States and some European countries to do so. Washington has for years argued that building another pipeline bringing natural gas from Russia to Germany increases Europe’s reliance on Russian energy supplies.
Scholz said that the government had decided to “reassess” the certification of the pipeline, which hasn’t begun operating yet, in light of the latest developments.
“That will certainly take time, if I may say so,” he said.
Germany meets about a quarter of its energy needs with natural gas, a share that will increase in the coming years as the country switches off its last three nuclear power plants and phases out the use of coal. About half of the natural gas used in Germany comes from Russia.
As a reminder, you can follow the latest developments in our Ukraine crisis live blog:
This is a massive geopolitical decision by Scholz and will be one of the biggest of his chancellorship.
— Adam Schwarz (@AdamJSchwarz) February 22, 2022
An indication European leaders are willing to make huge national economic sacrifices to free their nations from dependence on Russian hydrocarbons. https://t.co/DwFtShNuJE
*GERMAN CHANCELLOR SCHOLZ SAYS CERTIFICATION OF NORD STREAM 2 CANNOT GO AHEAD GIVEN RUSSIA'S LATEST ACTIONS pic.twitter.com/jTXWynLbOg
— Investing.com (@Investingcom) February 22, 2022
Germany pulls plug on Nord Stream 2 pipeline
BREAKING: Germany has pulled the plug on the Nord Stream 2 gas pipeline, according to the chancellor Olaf Scholz.
BREAKING Chancellor Olaf Scholz pulls the plug on Nord Stream 2 pipeline with Russia over Putin’s “blatant breach of international law”.
— Michaela Kuefner (@MKuefner) February 22, 2022
Scholz had avoided mentioning the pipeline to keep diplomatic channels with Moscow open but stresses now a “fundamentally different situation” pic.twitter.com/v6dCGeKj7q
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Market round-up: UK, European shares turn positive
The UK and Europe’s main stock markets have turned positive after suffering heavy losses (of more than 2% on the German, Italian and Spanish stock indices) in early trading. The UK’s FTSE 100 is up 29 points, or 0.4%, at 7,513 while the other exchanges are broadly flat.
Brent crude, the global benchmark for Russia’s main export (oil), ventured above $99 a barrel earlier but is now trading at $98.15, up 2.9%.
Russia’s two main stock indices are still trading lower. The dollar-denominated RTS index has fallen 3.5% after yesterday’s 13.2% plunge, while the rouble-denominated Moex index is down 3.86% following last night’s 10.5% drop.
The Russian rouble fell to a near two-year low of 81 to the dollar, but has now recovered to 78.88. Ukraine’s hryvnia currency has fallen to a seven-year low, trading at 28.9 to the dollar.
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News round-up
Here is our full story on what’s going on in financial markets.
And a round-up of our other main stories:
HSBC boosted its banker bonus pool by nearly a third after a global recovery from the Covid crisis helped profits more than double last year.
The London-headquartered bank increased its staff bonus pool to $3.5bn (£2.6bn), a move it said was justified due to its strong financial performance and the need to compete for bankers in an “extraordinarily competitive labour market”.
The UK government has recorded the first monthly budget surplus since the start of the coronavirus pandemic, despite a weaker than expected January performance as rising inflation pushed up debt interest costs.
The Office for National Statistics said public sector net borrowing was in surplus of £2.9bn last month – the first month in which income outstripped expenditure since January 2020.
Hundreds of thousands of tonnes of surplus food that could be going to hungry families is going to waste as supermarkets restrict who their suppliers can give it to, according to food distribution charities.
Several independent charities, which are grouped together under the Xcess network, say they struggle to source unwanted edible food from manufacturers and processors because of supermarkets’ rules about the handling of their own-label products.
The number of women in FTSE 100 boardroom roles has jumped to 39.1% from 12.5% 10 years ago, data has revealed, even as equality charities said progress for women in senior leadership roles was severely lagging.
And in our Suisse secrets series, our banking correspondent Kalyeena Makortoff has looked at how Swiss banking secrecy enabled an unequal global financial system.
Updated
There are fresh calls on the UK government to clamp down on Russian influence in UK finance and politics.
The UK capital is also known as “Londongrad”. Last month ministers were criticised by MPs from all parties for failing to tackle London’s reputation as a money-laundering hub used by Russian oligarchs, criminals and kleptocrats.
Caroline Lucas, Green MP for Brighton Pavilion, and a former party leader, has tweeted:
Vital to stand in solidarity with Ukraine in face of outrageous Russian aggression with robust, far-reaching sanctions & closing London’s shameful money laundering machine. Govt should’ve done much more to prevent Russian interference in UK politics, incl donations to Tory party
— Caroline Lucas (@CarolineLucas) February 22, 2022
Russia’s move against Ukraine has massively increased the uncertainty around the economic outlook for the eurozone, according to the European Economic Commissioner Paolo Gentiloni.
He said at an economic conference today that “uncertainty remains around us,” adding:
The violation of international law through Russian recognition of two separate territories in Ukraine will strongly increase this uncertainty.
The European Commission already cut its growth forecast for the 19-nation currency bloc to 4% this year from 4.3% earlier this month, citing a new wave of Covid-19 infections, soaring energy prices and ongoing supply chain problems.
Russian President Vladimir Putin announces that he is recognising the independence of two breakaway regions of Ukraine, Donetsk and Luhansk
— BBC News (World) (@BBCWorld) February 22, 2022
This has been has been met with condemnation by Nato and Western countrieshttps://t.co/WZJeQJaWnp pic.twitter.com/Po1FmFI6mo
German business morale improved in February across all sectors, according to a closely-watched monthly survey from the Munich-based Ifo institute.
Its business climate index rose to 98.9 from an upwardly revised 96.0 in January, marking the highest level since August. This was better than economists had expected.
Commerzbank’s chief economist Jörg Krämer said:
The results of the February Ifo survey are a clear sign that the German economy will benefit massively from the easing of the coronavirus crisis in the coming months.
However, the Ukraine crisis hangs over Europe’s largest economy “like the sword of Damocles,” experts said.
Ifo economist Klaus Wohlrabe told Reuters that “the uncertainty will increase massively” and the biggest risk for German companies comes from soaring energy prices. “That would be poison for the [economic] recovery.”
ING economist Carsten Brzeski said:
We don’t want to speculate about the next steps in the Russia-Ukraine crisis, but it is clear that the new uncertainty will weigh on business sentiment, dent purchasing power if energy prices continue to increase, and could eventually also, temporarily, subdue business investment.
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Natural gas prices jump; aluminium and nickel hit multi-year highs
Natural gas prices jumped 7%, despite assurances from the Russian president that Russia will continue to deliver uninterrupted natural gas supplies to world markets. He made the pledge in a letter to an energy conference in Doha.
British wholesale gas for next-day delivery rose 7% to 183p per therm this morning.
The United States and its European allies are set to announce fresh sanctions on Russia today, after Vladimir Putin ordered Russian troops to march into eastern Ukraine.
Fears of supply disruption have sent London-traded metal prices surging. Aluminium hit a more than 13-year high of $3,350 a tonne while benchmark nickel prices reached the highest level since August 2011.
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Oil prices trade at seven-year highs
Oil prices are trading at seven-year highs and Brent crude is fast approaching $100 a barrel. The global benchmark has jumped 3.8% to $99.04 a barrel, the highest since September 2014, while US light crude is 5.2% higher at $95.81 a barrel.
Experts are saying that oil could easily go through $100 and push towards $120 a barrel. The last time Brent was at (and above) $100 a barrel was in early September 2014.
Victoria Scholar, head of investment at interactive investor, said:
The intensifying crisis between Russia and Ukraine has raised concerns about the supply disruptions that would ensue as sanctions look set to cripple Russia, the world’s second largest oil exporter and the world’s top natural gas producer.
If Putin continues his aggression and the threat of war becomes a reality, oil prices could easily push beyond $100 towards $120 a barrel to fresh highs not seen since 2014. Not only are geopolitical tensions supporting the uptrend but the fundamentals of supercharged demand post COVID coupled by constrained supply from OPEC+ continue to support more bullish price action ahead.
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London-listed Russian firms suffer heavy losses
London-listed Russian companies have suffered heavy share losses in recent hours.
The FTSE 100 steelmaker Evraz, which is incorporated in London but has significant operations in Russia, is among the top fallers on the blue-chip index, trading nearly 4% lower. It is 29% owned by Roman Abramovich, the Russian owner of Chelsea football club.
Some 31 Russian companies are listed on the London Stock Exchange. Some which have their primary listing in Moscow have secondary listings in London, to raise money here. They range from state-backed oil and gas producers Rosneft and Gazprom, to state-run banks VTB and Sberbank, to independent mining companies like Norilsk Nickel that have no state ownership.
In London, Rosneft shares lost more than 7% this morning and later traded 3.7% lower, while Lukoil lost 6.2%, and Gazprom tumbled 8.1%. VTB Bank lost 9.2% and Sberbank plunged 13%. The mining group Norilsk Nickel fell 3.5%.
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Neil Shearing, group chief economist at Capital Economics, said:
The economic and market consequences of a war between Russia and Ukraine will depend on the severity of the conflict, and the response of the West. But in most cases the economic impact on countries beyond Russia and Ukraine is likely to be limited. The most significant consequence is likely to be that it will add to inflation pressures this year.
At the risk of stating the obvious, the biggest economic impact will be on Ukraine. The country’s balance sheet is extremely fragile, and some form of external financial assistance and/or debt restructuring is likely to be needed over the coming months. Depending on the evolution of the conflict, this could be challenging to co-ordinate.
The impact on Russia’s economy will depend in large part on the response of Western governments. It’s balance sheet is stronger than at the time of the 2014 Crimea crisis - external debt is lower, and financial linkages with other major advanced economies are smaller. The imposition of sanctions will still have an impact on the economy, but all other things being equal this is likely to be smaller than in 2014-15 (when GDP fell by ~2.5% and the country experienced a financial crisis).
Shearing said the biggest impact on other countries is likely to come through commodity prices.
In a worst case scenario, we estimate that oil prices could rise to $120-140pb. European natural gas prices are also likely to rise further. Were this to happen, it would add around 2%-pts to headline inflation (relative to our current baseline) in advanced economies this year, with Europe hit particularly hard. In normal times, central banks would tend to look through an energy-led rise in inflation, but given the current high rates of inflation, and corresponding concerns about it feeding higher inflation expectations, it’s possible that this adds to the list of reasons for policymakers to raise interest rates.
Finally, while a lot of bad news is now priced into Russian financial markets, this doesn’t appear to be the case elsewhere. Most of the sell-off in global equities this year can be attributed to the hawkish shift by the world’s major central banks. This suggests that there is still significant downside for global stock markets (and upside for safe havens, including US Treasuries) if the conflict escalates. It could also reverse this year’s pattern of European equities outperforming those in the US.
Russian stocks have notched up further losses. The dollar-denominated RTS index on the Moscow stock exchange fell as much as 6.4% to its lowest level since November 2020. It is now down 5.2% after yesterday’s 13.2% drop, while the rouble-based MOEX index has lost 4%, following yesterday’s 10.5% decline.
Updated
Gold, a traditional safe-haven investment, has climbed in recent days and reached $1,910 an ounce, a gain of 0.2%. Silver prices are also up, by more than 1%.
However Bitcoin, the world’s best-known digital currency, has fallen 0.4% to $36,913.
Looks like Bitcoin will not be safe haven in geopol crises. Digital gold (Bitcoin) has plummeted to <$37k, while Gold has risen >$1900/oz. Correlation between digital & analog Gold is now even neg. Narrative that digital Gold is better way to escape has not panned out in Ukraine. pic.twitter.com/94bH8eV7V3
— Holger Zschaepitz (@Schuldensuehner) February 22, 2022
European shares sell off at the open
At the opening bell, the FTSE 100 index in London lost 110 points and is now 1.4% lower at 7,380, a 105 point fall. France’s CAC fell 2.3%, while Germany’s Dax, Spain’s Ibex and Italy’s FTSE MiB all tumbled by 2.5%.
Updated
Rouble sinks to near-two-year low, Russian bonds sell off
The rouble has fallen sharply to 80.8 against the dollar, from levels around 70 four months ago. This is likely to fuel inflation, one of Russians’ main worries, and further drag down living standards.
After yesterday’s 3.3% fall, the rouble is down a further 1.2% against the dollar this morning, and went as low as 80.97, a level last seen in March 2020. Against the euro, it has also lost 1.2% to 91.2.
Ukraine’s hryvinia currency weakened more than 1% this morning, slipping to 28.9 against the dollar. It has lost about 6.5% since the start of the year as investors have pulled money out of the country.
Russian bonds have also sold off, sending their yields soaring. Yields (the return to an investor from the bond’s coupon, or interest, payments) on Russia’s 10-year benchmark OFZ bonds hit 10.79% this morning.
The cost of insuring Russian sovereign debt against default has soared to its highest level since early 2016. Five-year credit default swaps, which are used by investors to hedge against risk, jumped to 327 basis points, according to Reuters and data from IHS Markit –- the first time the 300 basis point threshold has been breached since April 2016.
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UK records first monthly budget surplus since pandemic started
The UK government has recorded the first monthly budget surplus since the start of the coronavirus pandemic, despite a weaker than expected January performance as rising inflation pushed up debt interest costs, reports our economics correspondent Richard Partington.
The Office for National Statistics said public sector net borrowing, excluding the nationalised banks, was in surplus of £2.9bn last month – the first net positive month for the public finances since January 2020.
Although this was £5.4bn less than borrowed in January 2021, it was still a £7bn smaller surplus than in the same month in 2020 before the onset of Covid-19.
City economists had forecast a surplus of £3.5bn. January is typically a net positive month for the public finances due to the timing of self-assessed income tax payments.
Hinting at tough measures in the forthcoming budget next month, Rishi Sunak, the chancellor, said:
We provided unprecedented support throughout the pandemic to protect families and businesses and it has worked, with the UK seeing the fastest economic growth in the G7 last year.
But our debt has increased substantially and there are further pressures on the public finances, including from rising inflation.
Keeping the public finances on a sustainable path is crucial so we can continue helping the British people when needed, without burdening future generations with high debt repayments.
National insurance is set to go up in April.
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British health secretary Sajid Javid said Russia’s invasion of Ukraine has already begun so Britain will impose sanctions on Russia.
Reuters reported that tanks and other military vehicles have moved through the separatist-controlled city of Donetsk after Putin formally recognised two breakaway regions as independent states, and ordered the deployment of Russian forces to “keep the peace”.
Speaking on Sky News, Javid said:
You can conclude that the invasion of Ukraine has begun. The Russians, President Putin, has decided to attack the sovereignty of Ukraine and its territorial integrity.
"The invasion of Ukraine has begun".
— Sky News (@SkyNews) February 22, 2022
Sajid Javid says "we're waking up to a very dark day in Europe" as it is "clear" that "President Putin has decided to attack the sovereignty of Ukraine".https://t.co/b7ZgvaaFKi #KayBurley
📺 Sky 501, Virgin 602, Freeview 233 pic.twitter.com/GtcnDYnj5i
Boris Johnson is due to address parliament on Ukraine later today. Javid said sanctions would be announced in the statement to parliament.
I’m sure that we’ll make those sanctions as targeted as possible to the people that are responsible for this flagrant violation of international law.
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Introduction: Stocks tumble, oil soars after Putin orders troops into Ukraine
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The deepening Ukraine crisis has sent global stocks tumbling and crude oil surging. Last night, Russian president Vladimir Putin ordered his military to enter the Russian-controlled areas of southeast Ukraine. In a lengthy televised address, he had recognised the territories of Donetsk and Luhansk as independent states.
Washington, European and other countries have condemned the move and threatened to impose tough sanctions.
Boris Johnson is chairing a meeting of the UK’s emergency Cobra committee this morning to sign off a package of sanctions against Russia. The initial signs were that the package would target “those complicit in the violation of Ukraine’s territorial integrity”.
You can read more on our Ukraine crisis live blog.
Financial markets are in for a torrid day. In Asia, Japan’s Nikkei lost 1.7%, Hong Kong’s Hang Seng tumbled 2.9%, the Shanghai Composite Index fell just over 1% and South Korea’s Kospi dropped 1.35%.
European and US markets are also braced for heavy losses at the opening bell.
On oil markets, Brent crude is marching towards $100 a barrel amid supply fears. It has gained more than $2, or 2.2%, to $97.51 a barrel while US light crude has jumped $3.60 to $94.67 a barrel, a gain of nearly 4%.
Viktor Szabo, an emerging market portfolio manager at abrdn in London, told Reuters last night:
It is probably an understatement to say that it will be an ugly day [on the markets]. I was hoping we weren’t going to get here, but this is a significant step.
Russian markets were still trading when Putin announced his decision live on television following phone calls to the leaders of Germany and France.
The rouble dropped 3.3%, falling past 80 against the dollar, while Moscow’s stock markets plummeted to their lowest level in over a year. The dollar-denominated RTS index ended the day 13.2% lower while the rouble-based MOEX Russian index lost 10.5%.
While European capitals (and Washington) weigh how to respond to Putin, together EU-UK-US will buy over the next 24 hours ~3.5 million barrels of Russian oil and refined products, worth >$330 million at current prices. Add to that the gas, the aluminum, the nickel, etc…
— Javier Blas (@JavierBlas) February 21, 2022
The Agenda
- 9am GMT: Germany Ifo business climate survey (forecast: 96.5)
- 9am GMT: Italy inflation final for January (forecast: 4.8%)
- 10.45am GMT: Bank of England deputy governor Dave Ramsden gives speech
- 11am GMT: CBI Industrial trends survey for February
- 2pm GMT: US House prices for December
- 2.45pm GMT: US Markit PMIs for February (manufacturing, services and composite)
- 3pm GMT: US Consumer Confidence for February (forecast: 110)
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