European stocks close lower again on Ukraine fears
European stocks have closed lower for the second day in a row.
- UK’s FTSE 100 index down 128 points, or 1.7%, at 7,330
- Germany’s Dax down 510 points, or 3.5%, at 13,950
- France’s CAC down 246 points, or 3.7%, at 6,412
- Italy’s FTSE MiB down 105 points, or 4.1%, at 24,363
Chris Beauchamp, chief market analyst at online trading platform IG, said:
Screens across global markets have turned red again, as market sentiment shifts back towards risk aversion, due to the worsening situation in Ukraine.
While the start to the day was rather shaky, there had been hopes that equities might continue to push higher even with the difficult backdrop of the war in Ukraine. But those hopes have evaporated. Previously strong sectors such as banking are beginning to feel the pressure as investors reassess the outlook both for global GDP and tighter monetary policy, the latter exemplified by a pushing back of expectations around the first European Central Bank rate hike.
European markets continue to be the most affected, from a combination of closeness to Russia (both geographically and economically) and by the weaker earnings outlook here compared to the US. Kremlin pronouncements have become more strident today, further reducing the attractiveness of the continent’s equities.
Thank you for reading. We’ll be back tomorrow – JK
IEA weighs oil stocks release to stem oil price surge – report
Ministers from International Energy Agency member states are pondering the release of 60m barrels from oil reserves, to bring crude oil prices down, Reuters is reporting, citing two sources.
The US energy secretary Jennifer Granholm is chairing an extraordinary ministerial meeting of the Paris-based IEA, which represents 30 nations and has coordinated three emergency oil stock releases in the past. It was founded in 1974 as an energy watchdog.
Brent crude is now trading at $104.25 a barrel, a $6.25 increase on the day. Any disruption from Russia, which has so far kept oil flowing to the west and exports around 4-5m barrels a day, could send prices even higher.
Andrew Hunter, senior US economist at Capital Economics, said:
The war in Ukraine will prevent US inflation from falling as much as it otherwise would have in the coming months, but it will have little impact on the real economy, so we doubt it will stop the Fed.
- Even after the recent escalation of Western sanctions, the direct impact of the conflict on the US economy is still likely to be negligible. Goods exports to Russia and Ukraine combined were worth just $9bn last year, and US banks have little direct exposure to either country. The conflict may drive renewed disruptions to some global supply chains but, again, the geographic distance means the US is far less exposed than continental Europe.
- Instead, the main impact will come via the rise in global commodity prices. The further rise in crude oil prices to $100 per barrel for WTI, up from $85 at the end of January, means headline inflation will remain worryingly elevated over next couple of months. Base effects mean that, even if prices don’t fall back, energy inflation will still fall this year, but that decline will be a bit slower than we previously anticipated.
- Retail gasoline prices could hit $4 per gallon soon, up from $3.40 in January, meaning that households will be spending an additional $75bn annualised on filling up at the pump.
- While rising food inflation may weigh further on household purchasing power, the US is a net exporter of agricultural commodities, particularly wheat, corn and soybeans. It’s also worth noting that, while European natural gas prices have surged, the US market has been unaffected.
- Financial market contagion is still possible, but the resilience in recent days is reassuring.
- We’ll be watching for any hints from Chair Jerome Powell at his congressional testimony tomorrow but, while we suspect the increased uncertainty makes a 50bp rate hike next month even less likely, we still expect the Fed to raise rates by 25bp at least four times this year.
Here is our full story on the equivalent factory survey for Britain. UK manufacturers are facing a sharp rise in costs as the Russian invasion of Ukraine undermines the progress made towards fixing global supply chains before the conflict broke out, economists have warned.
Output growth among American manufacturers picked up in February thanks to stronger demand and easing supply disruption, according to the latest monthly snapshot from IHS Markit.
It warned that the war in Ukraine was likely to lead to further supply chain disruption, higher inflation and a reversal in business optimism.
Although input costs increased at the slowest pace for nine months last month, selling prices ticked higher at the sharpest rate since last November.
The seasonally adjusted IHS Markit US Manufacturing Purchasing Managers’ Index rose to 57.3 in February, from 55.5 in January and only slightly lower than the ‘flash’ estimate of 57.5.
The headline figure was below the peaks seen in 2021, but signalled a stronger upturn in the health of the manufacturing sector, with sharper output and new order expansions contributing to overall growth.
Chris Williamson, chief business economist at Markit, said:
With the survey data collected prior to the escalation of the conflict in Ukraine, the full impact of the situation is yet to appear in the data. Supply chains are likely to be further disrupted, with existing shortages exacerbated by safety stock building, and prices will likely come under further upward pressure.
Perhaps most important will be the effect on business optimism and whether the improvement in prospects seen in February will be reversed, which could lead to reduced spending and investment.
Afternoon summary
Wall Street has slipped at the open, as banking stocks declined further, while surging oil prices boosted energy stocks. The Dow jones industrial average fell 80 points to 33,813, a 0.2% drop, while the S&P 500 opened almost 11 points lower at 4,363 and the Nasdaq dropped 34 points, or 0.25%, to 13,716.
While Asian shares moved cautiously higher, European shares are firmly in the red again. The UK’s FTSE 100 has lost 50 points, or 0.66%, to 7,408 while stock markets in Germany, France and Italy have all slid by more than 2%.
Oil, gas and other commodity prices continue to climb. Brent crude has jumped $6 to $103.93 a barrel after touching a seven-year high of close to $106 last Thursday, while US light crude is up $5.65% at $101.28 a barrel. Both are about 6% higher on the day.
The benchmark British natural gas contract has advanced 14.5% to 272.30p per therm and the Dutch contract has advanced 17% to €115.62 per megawatt hour.
Wheat prices have hit a fresh 13-year high and corn prices have also gained 5% in Chicago, amid fears over supply from Russia and Ukraine, major exporters of wheat and corn.
In Moscow, the rouble is sliding again, trading 5.3% lower at 99.6 per dollar. The latest western sanctions drove the Russian currency to a fresh record low of 120 per dollar yesterday. Against the euro, it has lost 3.7% to 109.9.
The Moscow stock exchange remains closed for a second day and the Central Bank of Russia said it would announce before 9am Moscow time tomorrow whether it will reopen.
Here is a round-up of today’s stories:
Updated
Wheat prices hit 13-year high
Oil and gas prices and other commodities have jumped again today. Wheat futures in Chicago rose more than 5% to hit $9.84 a bushel, the highest since April 2008.
Russia is the world’s largest exporter of wheat and together with Ukraine, accounts for about a third of the global wheat supply. Both countries are a major corn producers, and corn futures climbed nearly 5% to $7.25 per bushel, the highest since last May.
This threatens to push global food prices, which were already surging before the war in Ukraine, even higher.
Updated
Austia's Raiffeisen Bank International looks at leaving Russia – report
Austria’s Raiffeisen Bank International (RBI) is considering pulling out of Russia, and would be the first European bank to do so since Russia’s invasion of Ukraine last Thursday, Reuters reported, citing sources.
RBI has operated in Russia through its Moscow-based subsidiary since 1996, a few years after the Soviet Union collapsed. That business is one of the biggest banks operating in Russia, the 10th biggest by assets, and contributed almost a third of the Austrian banking group’s net profit of €1.5bn last year.
A decision to quit Russia (and Ukraine) is not imminent but could be triggered if RBI’s businesses in those countries need further cash or capital, one of the sources told Reuters. The other source said RBI could exit Russia and Ukraine by handing over ownership to another entity, or temporarily suspend activity.
Russia’s prime minister Mikhail Mishustin has said Moscow would temporarily stop foreigners selling assets, complicating any attempts to quit the country.
Could Putin be exploring cryptocurrencies to bypass western sanctions?
As many people do when discussing the complex world of cryptocurrencies, Vladimir Putin kept it simple: “Of course, we also have certain competitive advantages here, especially in the so-called mining.” After events this weekend, when Russia was hit by severe financial sanctions, the Russian president might be considering capitalising on those advantages, writes our global technology editor Dan Milmo.
Putin was speaking in January, days after the country’s central bank proposed a blanket ban on cryptocurrency trading and mining. In the case of bitcoin, the cornerstone cryptocurrency, mining is the energy-intensive process by which computers verify new bitcoin transactions – putting them on a virtual ledger known as a blockchain – and generate new bitcoins as a reward for that work.
The Bank of Russia was emphatic in its warning, saying that cryptocurrency mining entailed “significant risks for the economy and financial stability.”. One week later, Putin appeared to be less sure, pointing that Russia had advantages in cryptocurrency mining due to its huge energy wealth and expertise in the field.
A second round of talks between Russia and Ukraine has been scheduled for tomorrow, the Russian state news agency Tass has cited a source on the Russian side as saying.
The first round of talks that took place near the Belarus-Ukraine border on Monday ended after about six hours with no breakthrough, but both sides agreed to a follow-up round in the coming days.
More on our Ukraine crisis live blog here.
German inflation rises; Ukraine war to bring back stagflation
German headline inflation has gone up, instead of further retreating in February, and analysts at ING say the economic implications of the war in Ukraine are likely to bring back an economic nightmare from the past: stagflation.
According to a first estimate based on the regional inflation data, German headline inflation rose to an annual rate of 5.1% from 4.9% in January.
Carsten Brzeski, global head of macro at ING, said:
With the war in Ukraine and continued upward pressure on energy prices, the direction for German inflation has changed: it is no longer down, but up.
Looking ahead, with the war in Ukraine and continued tension and upward pressure on energy prices, headline inflation in Germany will accelerate rather than slow down in the coming months. The pass-through to all kinds of sectors is in full swing.
Add to this additional price mark-ups in the hospitality, culture and leisure sectors once the current round of [Covid-19] restrictions is over and it is hard to see inflation coming down significantly any time soon. Against the backdrop of recent geopolitical events, we now expect German inflation to average around 4.5% this year and to stay above 3% even at year-end.
Abrdn describes Russia, Belarus as 'non-investable'
The UK asset manager abrdn has described Russia and Belarus as “non-investable” on ethical grounds.
Steve Bird, the chief executive of the firm, which has £542bn assets under management, told Reuters that Russia’s invasion of Ukraine was “absolutely shocking,” adding:
We already had [Russia, Belarus] on a low rating. After the conflict we deemed them non-investable.
We have acted to reduce our holdings in Russia and Belarus.
We will not invest in Russia and Belarus in the foresseeable future.
The fund manager, a major player in emerging markets, has around £2bn of client money invested in Russia and Belarus, amounting to less than 0.5% of its assets under management. The Russian investments are spread across 200 funds.
Other asset managers, including JPMorgan and Pictet, have suspended trading in Russia-focused funds this week.
The hedge fund Man Group said today that its exposure to Russia and Ukraine was “negligible” and that it had cut its investments there in recent weeks.
Updated
Ukraine’s president Volodymyr Zelenskiy has told the European parliament “nobody is going to break us” or “intervene with our freedom,” in the face of the Russian onslaught. Satellite images show a huge Russian convoy north-west of Kyiv.
You can follow the latest developments on our Ukraine crisis live blog here:
Jaguar Land Rover pauses sales to Russia
Jaguar Land Rover has temporarily stopped selling its luxury cars to Russia, a decision welcomed by the UK business secretary Kwasi Kwarteng.
I welcome Jaguar Land Rover's decision to pause the delivery of vehicles into the Russian market.
— Kwasi Kwarteng (@KwasiKwarteng) March 1, 2022
There is now a rapidly growing number of companies and governments joining the whole international community in isolating Russia, both diplomatically and financially.
JLR, Britain’s biggest carmaker, owned by India’s Tata Motors, sold 6,900 cars to Russia last year. It cited “trading challenges” for its decision. It looks like sanctions imposed on Russia by western nations are making it difficult for the carmaker to deliver its vehicles to Russia.
Separately, the container shipping companies Maersk and MSC have announced today that they are halting shipping to and from Russia.
A JLR spokesperson said in a statement (reported by the BBC) its priority was “the wellbeing of our entire workforce and their families, as well as those within our extended network”.
The current global context also presents us with trading challenges, so we are pausing the delivery of vehicles into the Russian market and continually monitoring the situation on behalf of our global customer base.
The UK ban on any vessel connected with Russia from entering British ports will come into effect this afternoon – and includes private yachts, according to Boris Johnson’s spokesman.
The legislation will take effect this afternoon. The legislation will apply to Russian-flagged, owned, registered, controlled, chartered or operated vessels, and would include private yachts.
In other inflation news, UK grocery prices climbed at their fastest rate in over eight years in February, according to data from market analysts Kantar, who warned the squeeze on shoppers will continue as a result of supply chain disruption and the conflict in Ukraine, writes my colleague Joanna Partridge.
Food price inflation reached 4.3% last month, the highest level seen since September 2013, as the price of items including savoury snacks, fresh beef and cat food rose the fastest. However the cost of some products, including bacon, beer, and spirits has been falling.
Britain’s households are already facing a cost of living crisis, after the UK’s annual inflation rate hit 5.5% in January, hitting its highest level in almost 30 years. However, even before Russia’s invasion of Ukraine, economists had predicted that there was more pain to come in April, when household energy bills will soar.
Fraser McKevitt, head of retail and consumer insight at Kantar, predicted that food prices are likely to continue their climb:
Apart from the start of the pandemic, when we saw grocers cut promotional deals to maintain availability, this is the fastest rate of inflation we’ve recorded since September 2013.
Added to this, ongoing supply chain pressures and the potential impact of the conflict in Ukraine are set to continue pushing up prices paid by consumers.
After Maersk halted shipping to and from Russia this morning, the Geneva-headquartered shipping company MSC has also stopped cargo bookings to and from Russia, apart from food, medical equipment and humanitarian goods.
The world’s number one container line said it was implementing with immediate effect “a temporary stoppage on all cargo bookings to/from Russia, covering all access areas including Baltics, Black Sea and Far East Russia”.
Inflation in Italy accelerated to an annual rate of 5.7% in February from 4.8% in January, according to preliminary estimates from Italy’s statistics office Istat.
Energy costs surged nearly 46%, compared with 38.6% in January. However, even stripping out energy and unprocessed food (both volatile), core inflation rose to 1.7% from 1.5%, while inflation excluding energy picked up to 2.1% from 1.8%.
The war in Ukraine, which has sent wholesale gas and oil prices surging, threatens to push inflation even higher.
🇮🇹 Italy:
— Frederik Ducrozet (@fwred) March 1, 2022
- inflation rose to 5.7% in February
- negotiated wages were up 0.6% year-on-year in January
The real income squeeze will be massive.
More fiscal support will be needed. https://t.co/curMYA5MnJ
Alberto Lopez Valenzuela, founder and chief executive of the analysts alva, said business must move quickly to disentangle from Russia – or face reputational consequences.
As reported earlier today, the French oil and gas group TotalEnergies has refused to follow in the footsteps of BP and Shell in severing its Russian ties. It is clinging on to its 19.4% stake in Novatek, Russia’s largest independent natural gas producer, whose other shareholders include Gennady Timchenko, a Putin ally, who also sits on Novatek’s board.
Tui, the world’s largest tour operator, has also refused to take action against it single largest shareholder, Alexey Mordashov, who is a pro-Putin oligarch and owns a third of the travel company.
Valenzuela said:
BP’s move to offload its 19.75% stake in Russian state-owned oil firm Rosneft on Sunday was followed on Monday by Shell announcing that it would exit its joint ventures with Russian state energy firm Gazprom.
Norwegian oil group Equinor and Germany’s Daimler Truck are both ending their partnerships with Russian businesses. Volvo and Jaguar Land Rover said they are halting deliveries of cars to the country as the corporate fallout from the appalling invasion of Ukraine spreads.
Sport, too, is scrambling to distance itself from Vladimir Putin. Last night, Fifa and Uefa suspended all Russian football clubs and national teams “until further notice”. This announcement came after Fifa was accused of not going far enough by allowing Russia to continue playing as ‘RFU’ combined with a ban on its flag and anthem.
What next? Well, we can be sure of one thing – much more is to come. As the world’s governments turn their backs on Russia as international pariahs, so business must follow suit.
Putin's errors could herald big change in global finance – Jim O'Neill
Vladimir Putin’s miscalculation over his invasion of Ukraine could herald big changes in global finance, writes Jim O’Neill, a British economist and a former chairman of Goldman Sachs Asset Management.
During [recent] years, I got to know several senior technocrats in the policy world, primarily from the central bank and finance ministry, and leading economic influencers, and I was often struck by how widely the belief was about Putin’s excellence as a strategist.
I had for some years been expecting some great era of big reforms to be unleashed due to these views but alas, they never came, and instead, this game of playing on his perception of western weakness dominated his apparent strategic thinking.
Well, after the weekend just passed, and the western financial sanctions announced, it seems to me that Putin isn’t such a great strategist after all.
I don’t know where the idea of freezing the central bank’s foreign exchange reserves originated, but whoever thought of it has come up with a cracker, alongside the bold move by leading western nations to agree to remove key Russian banks from the Swift plumbing network of the financial system.
You can read his analysis here:
European shares are firmly in the red again, with the FTSE 100 index in London down almost 1%, while the German, French and Italian indices dropped more than 2%.
French finance minister Bruno Le Maire has expressed confidence that the global sanctions on Russia would lead to the collapse of its economy.
He told France Info radio:
We will provoke the collapse of the Russian economy. We are waging total economic and financial war against Russia, Putin, and his government, and let’s be clear, the Russian people will also pay the consequences.
Evraz and Polymetal to lose FTSE 100 status
The Anglo-Russian gold miner Polymetal has tumbled a further 27% this morning while the Russian steelmaker Evraz, which is 29% owned by the Russian billionaire businessman Roman Abramovich, has retreated nearly 12% after earlier gains.
After heavy losses in recent days, both are set to lose their FTSE 100 status in the first FTSE 100 reshuffle of the year tomorrow. The changes will be announced after the market closes on Wednesday and be based on today’s closing prices. They will take effect on Monday 21 March.
In the first FTSE 100 reshuffle of this year tomorrow, Evraz and Polymetal will lose their FTSE 100 status. Royal Mail could also be relegated, while Howden Joinery and the gold producer Endeavour Mining could be promoted to the blue-chip index.
Richard Hunter, Head of Markets at interactive investor, said:
The first FTSE100 reshuffle of 2022 is due shortly and is likely to be reflective of the current market turmoil resulting from geopolitical tensions.
The precipitous falls in the share prices of miners with Russian exposure has guaranteed that both Evraz and Polymetal will lose their FTSE 100 status. Share price declines in the year to date of 76% and 79% have left both companies languishing well below the 110th spot which would be required in order to remain.
In terms of their replacements, kitchen supplier Howden Joinery is poised to be promoted despite the share price having declined by 7.3% in the year to date. Recent pre-tax profits were comfortably ahead of consensus, with an improvement in margins which lifted the shares on the day of the announcement.
Gold producer Endeavour Mining is also likely to move up to the premier index, despite being outside the usual criterion of finishing 90th or above in terms of market capitalisation. The shares have risen by almost 25% in the year to date, boosted by a move towards haven investments following on from the escalating situation between Russia and the Ukraine, with the gold price having spiked by around 5% so far this year.
He said Royal Mail’s 22% share price decline so far this year may send the shares tumbling out of the index once more. The company regained its place in the FTSE 100 last June, having previously been relegated in December 2018.
Should Royal Mail find itself ousted from the FTSE100, there is barely a glimmer of light between the two companies in line to replace it, namely either Centrica or easyJet. Having risen so far this year by 9% and 8% respectively, Centrica is currently shading it, having been boosted by a recent return to a healthy profit having dealt with a sizeable pension deficit and the possibility of a return to dividend payments emerging into view.
Meanwhile, a promotion for easyJet would be the latest in a rollercoaster ride, which has seen the shares relegated from the FTSE-100 in June 2019, promoted again in December 2019, only to be relegated once more (along with Centrica) in June 2020, having suffered the effects of the height of the pandemic.
Some companies have moved to sever their ties with Russia, such as the UK oil groups BP and Shell, which have decided to ditch their alliances with Russian state-backed energy firms Rosneft and Gazprom respectively.
Norway’s sovereign wealth fund said on Sunday that it would sell its Russian investments, and the UK’s biggest private pension fund followed suit today.
Meanwhile, France’s TotalEnergies condemned Moscow’s military aggression in Ukraine and said it would not fund new projects in Russia. However, it held on to its 19.4% stake in Novatek, Russia’s largest producer of liquefied natural gas.
TotalEnergies supports the scope and strength of the sanctions put in place by Europe and will implement them regardless of the consequences (currently being assessed) on its activities in Russia.
The French finance minister, Bruno Le Maire, said earlier today that he would be holding talks with the heads of TotalEnergies and the energy firm Engie about their business interests in Russia. He told France Info radio:
I believe there is a question of principle in working with any political or financial person close to Russian power.
Updated
Maersk to halt container shipping to and from Russia
The Danish shipping giant A.P. Møller – Mærsk will temporarily halt all container shipping to and from Russia, deepening the country’s isolation following its invasion of Ukraine last Thursday.
Western sanctions have closed Europe’s airspace to Russian aircraft, shut out some Russian banks from the Swift international payments system, and restricted Moscow’s ability to use its $630bn in foreign reserves.
Maersk said it was “deeply concerned by how the crisis keeps escalating in Ukraine”.
We closely follow the ever-evolving situation with government posing new sanctions on Russia and we start seeing the effect on global supply chain flows... such as delays, detention of cargo by customs authorities across various transshipment hubs, unpredictable operational impacts.
As the stability and safety of our operations is already being directly and indirectly impacted by sanctions, new Maersk bookings to and from Russia will be temporarily suspended, with exception of foodstuffs, medical and humanitarian supplies.
This exception is to underline that our company is focusing on the social responsibility and take the efforts to support the society despite all the complications and uncertainties within current supply chain to/from Russia.
Updated
BOE: Mortgage approvals and mortgage lending rise
The Bank of England said mortgage approvals for house purchases rose to 74,000 in January, above the 12-month pre-pandemic average up to February 2020 of 66,700. Britons borrowed £5.9bn in mortgage debt, up from £4bn in December and above the pre-pandemic average of £4.3bn.
The figures suggest the UK housing market remained buoyant at the start of the year, and experts said many people are trying to move house before interest rates go up further.
Simon Gammon, managing partner at Knight Frank Finance, said:
Purchasing activity in the mortgage market remained above seasonal norms during January, despite Omicron clouding the economic outlook stock levels wallowing close to all-time lows relative to demand.
We expect the data to show another pick up in the coming months. Many potential purchasers opted to wait during the pandemic, whether due to low stock or the uncertain outlook. We’re now seeing large numbers seeking to move before rates rise further. The limiting factor on purchasing activity during the weeks ahead will be the shortage of properties to purchase.
The Bank of England’s remortgaging data doesn’t capture deals when borrowers stick with their current lender, but we are seeing significant numbers of borrowers looking to remortgage ahead of another potential rate rise in March. There is little doubt that mortgage rates will continue to rise over the course of the year, what’s unclear is how fast. The outlook is much more uncertain amid the escalating conflict in Ukraine.
Oil and gas prices continue to climb
Crude oil prices continue to climb, and Brent crude is back above $100 a barrel. It touched $105.79 last Thursday, the highest since August 2014, after Russia’s invasion of Ukraine.
At the moment, the global benchmark is $3.50 higher at $101.44, a 3.5% gain. US light crude has added 3% to $98.51 a barrel.
Natural gas prices are also up again, but at a more modest rate. The British benchmark has gained 5.5% to 250.96p per therm, while the Dutch contract is 7.5% higher at €106 per megawatt hour.
The UK transport secretary, Grant Shapps, said yesterday that Russian vessels will be banned from British ports, in an effort to ensure the Kremlin is not funding its war effort in Ukraine with sales of oil and gas in the UK.
Updated
UK manufacturing output at seven-month high, but Ukraine clouds outlook
Britain’s manufacturers ramped up production growth to a seven-month high in February, aided by stronger domestic demand, fewer raw material shortages and easing global supply chain pressures.
Although input price inflation remained elevated, the latest survey from IHS Markit and CIPS (Chartered Institute of Procurement & Supply) also signalled that cost increases were starting to ease.
The seasonally adjusted manufacturing PMI [purchasing managers’ index] rose to a three-month high of 58.0 in February, up from 57.3 in January. The PMI has remained above the neutral 50.0 mark for 21 successive months.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply:
There were certainly several positives for the UK’s manufacturing sector in February as 64% of manufacturing businesses remained optimistic.
However, this success comes with a health warning as the Ukrainian crisis deepens and the potential for higher commodity prices, disruptions to supply and economic pain must be considered by businesses as they try to build resilience into their supply chains in the coming months.
Updated
Manufacturing output growth in the eurozone was supported by stronger demand and fewer delivery delays in February, according to monthly snapshot from IHS Markit. It warned of new inflation risks from the war in Ukraine, which has driven oil and gas prices higher.
Its final reading for the manufacturing PMI for February shows:
- Final Eurozone Manufacturing PMI at 58.2 in February (Flash: 58.4, Jan Final: 58.7)
- Demand for eurozone goods rises at fastest rate since last August
- Supplier delivery times lengthen to weakest extent for over a year but inflation remains steep
The survey shows that growth in both output and new orders among eurozone manufacturers gained further momentum last month following improvements in January.
There were also fewer supplier delivery delays across the month. However, capacities across the sector continued to be tested and, while rates of both input cost and output price inflation slowed in February, they were still among the fastest on record.
Joe Hayes, senior economist at IHS Markit said:
Don’t let the drop in the headline PMI distract from what should be viewed as a largely positive month for the euro area manufacturing sector in February. Demand for goods is trending higher, with the rate of expansion accelerating to a six-month high. Underlying sales conditions are clearly strengthening as Europe overcomes the Omicron wave of Covid-19 and businesses step up their recovery efforts.
Now, the Russia-Ukraine situation, which also carries the risk of dampening growth, adds fresh fuel to inflation risks, and we’ve seen Brent crude already moving higher in response. It’s going to take prudent macroeconomic policy management to re-anchor inflation expectations without denting the demand recovery too heavily.
There is an eerily calm mood in markets. European stocks are falling again, but not collapsing... The UK’s FTSE 100 index has followed the rest of Europe and is now trading 11 points lower at 7,447 (a 0.15% drop), giving up earlier modest gains.
Germany’s Dax has lost 1% while France’s CAC and Italy’s FTSE MiB are 0.7% and 0.9% lower respectively. The rouble sell-off has also eased while Russian stock markets remain closed.
Neil Wilson, chief markets analyst at the investment firm Markets.com, said:
Russia exposed stocks more mixed this morning: Polymetal, JPMorgan Russian Securities and Petropavlosk all lower again, whilst Evraz and Ferrexpo rallied a bit. The rouble has come off its lows and trades around 91 to the US dollar. At the moment it looks as though the Russian central bank is doing a not terrible job of supporting the currency, but through some pretty tough measures – massive rate hike and capital controls. How long can this last? First Switzerland and now even Monaco is kicking out Russian money!
As for Russia and Ukraine....the dreadful situation gets worse as heavy shelling of built-up areas shows us what is to come. Talks yesterday didn’t get far but the two sides have agreed to try again as a massive Russian convoy starts to encircle Kyiv. Bombing of civilians will harden Western public opinion against Russia – voters are already taking a pretty hard line across Europe. Unified public opinion complicates matters for governments who might prefer to base policy solely on the advice of their military intelligence and strategic advisors. But that is the way of things.
For markets, this means the question of direct sanctions on oil and gas exports from Russia is a matter of when not if. Canada has already unilaterally banned Russian oil imports, though these are microscopic compared to Europe’s appetite for Russia’s crude and natural gas.
Updated
UK’s biggest private pension fund sells Russia-linked assets
The chief executive of the UK’s biggest private pension scheme is seeking to offload its £450m of assets linked to Russia, saying there is a moral as well as financial imperative for companies to do so after the invasion of Ukraine, reports my colleague Mark Sweney.
Simon Pilcher, the head of the Universities Superannuation Scheme, said that it has sold off about half of the portfolio of investments it has connected to Russia in the last few weeks.
Speaking to BBC Radio 4’s Today programme on Tuesday, Pilcher said:
We think there is a clear financial as well as a moral case for divestment with respect to our Russian holdings.
Morals drive finance and if you are a financial investor and you don’t think about the moral impacts of what you are doing you are both shortsighted and, dare I say it, immoral.
Norways’ sovereign wealth fund, the biggest in the world, announced on Sunday that it would sell all its Russian assets.
Moscow stock exchange remains shut for second day
While the rouble has steadied in Moscow, Russian stock and derivative markets will remain closed today for a second day.
The Central Bank of Russia decided not to reopen stock markets yesterday after heavy western sanctions on the country. London-listed Russian shares plunged yesterday, including Sberbank and the oil and gas producers Gazprom, Rosneft and Lukoil.
This morning, Sberbank bounced back 20% and Gazprom rose nearly 12%, while Rosneft added 2.8% and Lukoil fell a further 19%.
The Russian steelmaking and mining group Evraz is the top riser on the FTSE 100 index, up nearly 5%, after heavy losses yesterday.
European stocks are mixed after the opening bell.
- UK’s FTSE 100 index up 25 points, or 0.3%, at 7,484
- Europe’s Euro Stoxx 600 down 0.1%
- France’s CAC down 0.2%
- Spain’s Ibex down 0.2%
- Italy’s FTSE MiB up 0.36%
News round-up
As markets opened in a panic on Monday, many Russians rushed to local cashpoints in Moscow to retrieve their savings before the damage got any worse, write our Moscow correspondent Andrew Roth and Pjotr Sauer in Moscow.
“It said they had dollars so I came here immediately,” said Alexei Presnyakov, 32, pointing to an app for Russia’s Tinkoff Bank, indicating he could withdraw hard currency. About 20 people were queued in line. “Yesterday [the rate] was 80 [to the dollar]. Today it’s 100. Or 150.” Within minutes, however, the word traveled down the queue: the dollars were gone.
Disney is pausing all theatrical releases in Russia, including the upcoming Pixar film Turning Red, citing the “unprovoked invasion of Ukraine and the tragic humanitarian crisis”.
Our financial editor Nils Pratley has looked at BP and Shell leading the rush to exit Russia: There can be no going back.
Russian vessels will be banned from British ports, the transport secretary, Grant Shapps, said on Monday, in an effort to ensure the Kremlin is not funding its war effort in Ukraine with sales of oil and gas in the UK.
‘It’s about bloody time’: UK finally moves to block Russia’s ‘dirty money,’ writes my colleague Rob Davies. Following Russia’s invasion of Ukraine, the UK business secretary Kwasi Kwarteng announced clean-up measures to tackle London’s reputation as “Londongrad”.
Oligarchs and kleptocrats will no longer be able to hide their ownership of property through companies based in overseas territories, the business secretary said on Monday, but refused to give a date for when the change would come into force, reports our deputy political editor Rowena Mason.
Here’s an analysis of the sanctions imposed on Russia so far.
UK business leaders have urged the chancellor, Rishi Sunak, to postpone the “ill-timed” and “illogical” £12bn increase in national insurance contributions, amid warnings over soaring costs for companies and households as the Russian invasion of Ukraine drives up inflation.
Updated
Ipek Ozkardeskaya, senior analyst at Swissquote, said:
The direct implication of Russian sanctions was a surge in cryptocurrency prices, and especially Bitcoin. The coin, which was moving along with the risk assets less than a couple of days ago, is now The Asset that Russians and Ukrainians rely on to get their funds out of the traditional system which has become very hostile to them. It is reported that Bitcoin purchases using Rubles and Hryvnias soared as Russia imposed sanctions on its citizens.
Being able to transact value in Bitcoin also helps Russian oligarchs go around the Western sanctions. It may also help Russian companies and even the Russian central bank to move funds as these entities can no longer access US dollars, and most of the Russian banks are no longer part of the SWIFT system.
If there is no policy response from the West to the Bitcoin adoption from Russia, the positive trend could further develop and make Bitcoin the number one safe haven asset in the war setup. Yet, how much the West would tolerate the Bitcoin interference to its political decisions is a major question, that increases the regulatory risks for cryptocurrencies.
For Russians though, the cryptocurrency risk is definitively worth be taken.
Introduction: Mastercard blocks Russian firms, bitcoin rises
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Talks near the Belarus-Ukraine between Ukrainian and Russian officials yesterday ended inconclusively and were overshadowed by intensifying fighting in Ukraine. We’ve woken up to news that more than 70 Ukrainian soldiers have been killed in Okhtyrka, a city between Kharkiv and Kyiv, after a Russian strike on a military base.
As western nations imposed wider sanctions on Russia, Mastercard said last night that it had blocked several financial institutions from its payment network. The New York-based firm said it would continue to work with regulators in coming days, and pledged to contribute $2m for humanitarian relief for Ukraine.
Visa made a similar donation, and said in a statement that it was taking action to ensure compliance with sanctions.
Expectations are growing that Russia could turn to crypto currencies after being shut out of the Swift international payment system and with sanctions imposed on its banks. Bitcoin, the world’s best-known cryptocurrency, has reversed declines in recent days and rose 4.4% to $43,460 this morning, after a 10% gain yesterday.
Asian shares were firmer after heavy selling across global stock markets in recent days. Japan’s Nikkei rose 1.2% while Hong Kong’s Hang Seng was up 0.4% and the Australian stock market rose 0.7%.
Kerry Craig, global market strategist at JPMorgan Asset Management, said:
The markets are going to focus on the broader implications of what’s gong to happen around energy prices, what that means for inflation across parts of the world.
Brent crude, the global benchmark, is trading just below $100 a barrel, at $99.92, up 2%, after touching a seven-year high of $105.799 last Thursday when Russia invaded Ukraine. Gold, a traditional safe-haven investment, has eased to $1,907 an ounce.
The Russian rouble has stabilised after it plunged 30% to a record low of 120 per dollar on Monday. The Russian central bank more than doubled its key interest rate to 20% and announced a slew of other measures to stem the decline. This morning the rouble is down 0.3% to 94.85 per dollar, and is unchanged versus the euro at 106.02.
After European markets closed yesterday, Shell announced it would divest its Russian assets and end its alliance with Gazprom, following a move by BP the previous day to get rid of a 20% stake in Rosneft, which will cost it $25bn.
Attention has now turned to oil giants like TotalEnergies and Exxon, which haven’t yet disclosed what they will do. US firm Exxon is now under pressure to sever its ties with Rosneft, and offload a 30% stake in a Sakhalin Island oil and gas fields projecct in Russia’s Far East.
France’s TotalEnergies holds a 19.4% stake in publicly listed Novatek, reputedly with close ties to the Kremlin as Putin ally Gennady Timchenko sits on its board. Novatek is Russia’s second-largest gas producer.
The Agenda
- 9am GMT: Eurozone Markit manufacturing PMI for February (final)
- 9.30am GMT: UK Markit manufacturing PMI for February (final)
- 9.30am GMT: UK Mortgage approvals and consumer credit for January
- 10am GMT: Italy inflation for February (preliminary)
- 1pm GMT: Germany inflation for February (preliminary)
- 2.45pm GMT: US Markit manufacturing PMI for February (final)
Updated
