A woman walks past a currency exchange office in central Moscow on February 24, 2022
(Picture: AFP via Getty Images)War in Ukraine and the prospect of sanctions against Russia sent shockwaves through the City today, as investors braced for higher inflation and weaker growth.
The threat of disruption to supplies of everything from oil to corn sent commodity prices spiking, while uncertainty about the economic fall-out sparked a rush to dump stocks and buy gold. Russian markets went into freefall as Western leaders prepared to impose tougher sanctions.
Neil Wilson at Markets.com said: “There was an air of complacency yesterday as investors hoped that Russia’s incursions would be limited. That fragile hope has been shattered as Russian forces moved in overnight.”
Brent Crude leapt 7.5% to $104.16 a barrel this morning, reaching its highest point since August 2014 as Vladimir Putin ordered a full-scale assault on Ukraine. The price of natural gas leapt by a third to £280 per therm.
Europe is highly dependent on energy supplies from Russia and analysts at UBS warned that the conflict could have knock on effects for the growth of economies across the eurozone.
Grain prices spiked, with wheat up 5.6% to $935 a bushel. Ukraine is nicknamed the “breadbasket of Europe” due to its rich agricultural land.
Rising prices of raw materials and fuel are sure to worsen the world’s inflation crisis.
Thomas Pugh, an economist at RSM UK, said: “Inflation in the UK will now probably rise beyond the 7.5% peak we had expected in April and will remain higher for longer. A good general guideline is that a $10 increase in a barrel of oil increases inflation over the next year by about 0.15ppts. The direct effects on inflation will also likely extend to food prices.”
Stocks sank across the world and the FTSE 100 dropped by more than 2.5% in London.
Gold and silver miner Polymetal International, which has pits in Russia and Kazakhstan, fell 37%. Russian steel giant Evraz lost 26%. Ferrexpo fell 27%.
Susannah Streeter at Hargreaves Lansdown said: “With tough incoming sanctions expected, their businesses are likely to take a major hit with little respite in sight given the seriousness of the situation.”
One of the few stocks to make gains was weapons maker BAE Systems. Annual results showed sales rose 5% last year to £21.3 billion. CEO Charles Woodburn said BAE had benefited from an increase in defence spending in Europe in recent years. He said he was “disappointed” by the situation in Ukraine.
Gold rose 2.7% to $1960 per ounce, its highest price in just over a year.
US and Asian stock markets sank overnight and the DAX index fell as much as 4% in Germany today. In Moscow, the MOEX index suffered its biggest one-day fall in history. Wilson said Russian markets were in “meltdown” due to the threat of sanctions.
Even the rouble, usually supported by higher oil prices, sold-off. Russia’s national currency fell to a record low against the dollar as investors fretted that Russia could be shut out of Swift, the international payment system used to move money around the world. The country central bank was forced to intervene to prop up the currency.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said: “Markets had not fully priced in the likelihood of deeper conflict. We expect continued volatility in the near term as leaders calibrate and announce their response to this escalation.”
