Fund managers ditch Russian assets, global stocks slide, bitcoin rises after latest sanctions – as it happened (2024)

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

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.

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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.

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:

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.

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.

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 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.

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.

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 has temporarily stopped selling its luxury cars to Russia, a decision welcomed by the UK business secretary Kwasi Kwarteng.

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.