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FTSE 100 closes lower on fears of higher energy prices and inflation

Last updated: 03:45 08 Mar 2022 AEDT, First published: 17:41 07 Mar 2022 AEDT

ftse 100
  • FTSE falls 27 points, or 0.4%
  • War spooks investors, bolsters fixed income
  • Evraz PLC (LSE:EVR) the day’s top performer

4.45pm: Fears over higher energy prices and inflation

The FTSE 100 fell Monday as investors grew increasingly concerned higher energy prices stemming from the Russia-Ukraine conflict would slow the global economy while raising inflation.

Russia’s highly risky invasion and the ensuing sanctions have caused global energy prices to jump, sending investors fleeing for the safety of fixed-income assets.

At the close, the UK blue-chip index had dropped 27.66 points, or 0.40% lower at 6,959.48

Chris Beauchamp, chief market analyst at online trading group IG, said falling equity prices and rising commodity prices are hammering a “bearish theme” in the markets 

“The FTSE 100 found itself at its lowest point in eleven months in early trading, while the Dax has come under heavy pressure too, slumping to a sixteen-month low after a very torrid week. It looks like the Dax might have found a low for now, and in a change to last week it US indices that are moving lower while European ones manage to stabilise,” he said.  

“But this is just a shifting of the pressure points in global markets. Investors continue to fret about the war, oil prices, more sanctions, monetary tightening and a possible recession. This is a much bigger, and more solid, wall of worry than anything encountered since at least the pandemic, and is certainly composed of many more factors than we have seen over the last decade. Crises used to come along one or two at a time, but now they have come all at once, and that makes it hard for markets to price the outcomes.”

The session;s top gainer was Evraz PLC (LSE:EVR), which bounced 49% higher to 89.35p.  

4.00pm: Unlikely to see immediate ban on Russian oil and gas exports

Crude oil prices eased towards the end of Monday as Europe's leaders said it was unlikely there would be an immediate ban on Russian oil and gas exports.

Olaf Scholz, the German chancellor, said energy supplies from Russia were of  “essential importance” to the European economy and that while finding an alternative to Russia was urgent finding new sources of supply won’t happen overnight.

 “It’s, therefore, a conscious decision on our part to continue the activities of business enterprises in the area of energy supply with Russia.”

UK prime minister Boris Johnson also said that Europe could not just shut down oil and gas supplies from Russia overnight.

Crude prices jumped to around US$140 barrel on Monday morning on weekend reports that the US was considering a ban on Russian supplies, though brokers pointed out that its dependency on oil and gas from the country is much lower than Europe.

3.50pm: Nickel surges as Copper, Gold, and Platinum reach record prices 

The metals market was shaken today, mirroring commodity markets, due to the West’s concerns of further sanctions on Russia.

Copper futures soared above US$5-per-pound level for the first time in history on Monday amid growing concerns of supply chain disruptions due to Russia’s continued invasion of Ukraine.

“Suppliers are especially low in Europe and although Russia accounts only for 4% of global production, Europe is the primary export market.

“Adding to woes, the world's biggest producer Chile, recorded its lowest January output since 2011, with production sinking 15% compared to December,” Trading Economics said.

Nickel surged to a 14-year high, Platinum reached a record, and gold broke the US$2,000-per-ounce mark for the first time.

3:29pm: Early FTSE plummet deemed a 'knee jerk' reaction - analysts 

The market’s early morning losses and subsequent recovery have been deemed a ‘knee jerk’ reaction by analysts. 

Initial movement, which saw the FTSE lose about 150 points at one stage was largely initiated by fears that Europe and the US would be imposing bans and sanctions on Russian oil over the weekend. 

“The initial reports sent oil prices soaring, with brent crude almost touching US$140 a barrel on the open, which in turn sent equity markets spiralling lower,” said Craig Erlam, senior market analyst at Oanda. 

“It's this kind of event risk that investors fear each Friday as they trigger enormous knee-jerk reactions on the open, big gaps and are usually exacerbated compared to what would be seen during the week.

“And that's exactly what we've seen today. As the dust has settled, fear of European bans on Russian oil - and potential retaliation or follow-up moves in gas or other commodities - has subsided. 

“That has been helped by comments from Germany's finance minister, Christian Lindner, stating that the country is against any push to stop Russian oil and gas imports,” Erlam added.

3.09pm: Hurricane Energy to evade debt concerns on soaring oil prices 

Hurricane Energy PLC (LSE:HUR) shares rose another 5.3% in Monday afternoon's dealing as soaring crude oil prices make it increasingly likely that the UK offshore oiler can escape its debt problem.

The company produces just shy of 10,000 barrels per day from the Lancaster field - which amid technical and performance failings has not lived up to previously lofty expectations – and it is facing a July deadline to repay nearly US$80mln of convertible bonds.

Climbing oil prices up until the turn of the year opened up and increased the possibility that the company could generate sufficient cash flow from production to repay the debt, and, as crude prices spike to the highest level since 2008, investors appear to be increasingly confident to back what could be a phoenix-like recovery for the company.

2.45pm: Scottish Mortgage slips on tech selloff 

The Scottish Mortgage Investment Trust PLC fell 2.76% as the Nasdaq opened 25 points below Friday’s close in early trading, while the FTSE 100 clawed back all of today’s earlier losses to be up 5 points by mid-afternoon.

A large chunk of the trust’s portfolio is made up of tech giants such as Amazon and Tesla that feature on the Nasdaq.

Shares have fallen 17% in total over the last month, and that is despite the company continuing to be the most bought investment trust, according to interactive investor.

The trust was the most popular investment trust last month, keeping the top spot as investors “lean on this volatility” the market is currently experiencing.

“It clearly takes more than a tech sell-off, talk of a rotation to value, and a devastating crisis in Ukraine to knock Scottish Mortgage off the top spot,” said Dzmitry Lipski, head of funds research at interactive investor.

2:20pm: FTSE back in the green

The FTSE 100 clawed back all of its losses from this morning, when it was over 150 points down, to change hands 15 points higher at 7,002 during Monday’s mid-afternoon trade.

2.05pm: Uniqlo refuses to halt Russian operations joining McDonald's and Pepsi

Fast Retailing Co Ltd, the parent of clothing designer Uniqlo, joined a shortlist of giant companies refusing to pull the plug on its Russian-based operations.

"Clothing is a necessity of life. The people of Russia have the same right to live as we do," Tadashi Yanai, Fast Retailing chief executive, said.

The Japanese-owned company followed in the steps of fast-food chain McDonald’s Corp and soft drink maker PepsiCo (NASDAQ:PEP), Inc.

Uniqlo is bucking the trend of some of the world’s most colossal companies that temporarily or permanently severed ties with Russia, including Apple Inc (NASDAQ:AAPL), Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL), ExxonMobil Corp, HSBC Holdings PLC, and Volkswagen AG.

Netflix Inc (NASDAQ:NFLX), TikTok parent ByteDance, American Express Company (NYSE:AXP), Visa Inc (NYSE:V), and Mastercard Inc (NYSE:MA) became the most recent to suspend Russian operations on Monday.  

1.30pm: Shell helps FTSE clawback morning's losses

The FTSE has recovered most of the losses incurred from early hour trading this morning, down only 9 points now.

Shell PLC (LSE:SHEL, NYSE:SHEL, EURONEXT:SHELL) is one of the companies leading the charge, climbing 7%, as the price of petrol and diesel in the UK reached 155.62p and 161.28p a litre, a record high for diesel.

The oil and gas company defended its decision over the weekend to buy Russian crude oil, as the prices hit US$139 a barrel in earlier trading.

Companies have so far been reluctant to impose sanctions on oil imports from Russia over fears any bans could send the price rocketing further, with it being the second-largest producer behind Saudi Arabia of crude oil, as well as supplying about a third of Europe with oil.

The likelihood of sanctions over imports do however seem much more possible with each passing day, with the US secretary of state Antony Blinken confirming the US and Europe were in talks over a boycott of Russian oil and associated products.

12:56pm: US stocks expected to fall in open

US stocks look set for an opening drop as global markets plunged on Monday amid surging energy prices on the threat of a potential ban on Russian oil imports which investors worry could impact economic growth as the conflict in Ukraine intensifies.

Futures for the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 fell by between 1.4% and 1.6%. The Dow last week recorded its fourth straight week of losses.

The war in Ukraine following Russia's invasion of the country is now in its 12th day and has increased tensions between Moscow and the West, leading to Russia being locked out of much of the global financial system.

Oil prices soared again, with global benchmark Brent crude topping $130 a barrel at one stage on Monday, the highest level since July 2008. The US and its European partners are discussing a ban on imports of Russian oil, US Secretary of State Antony Blinken said Sunday. 

Surging oil and gas prices are spurring concerns that Europe, an energy importer dependent on Russia, could fall into recession. 

Higher commodity prices and the resulting accelerated inflation are also complicating the next moves of major central banks, who were largely set to begin tightening monetary policy before the war began. The European Central Bank is meeting this week, and investors will be watching for changes to its growth outlook and what this could mean for policy.

Michael Hewson, chief markets analyst at CMC Markets commented: “It’s hard to see much in the way of significant upside for stock markets now against a backdrop of continued escalation."

“This toxic cocktail poses a huge problem for central banks. Do they tighten monetary policy and risk pushing the world into a recession even quicker or do they allow inflation to rip higher, which would do the same thing?” Hewson added.

12.33pm: House price growth at 15-year high

House price annual growth reached its highest levels in 15 years as February became the eighth consecutive month of rising prices.

House prices surged 10.8% in the year to February 2022, while the average UK house price of £278,123 was a record-high, Halifax said.

“Two years on from the start of the pandemic, average property values have now risen by £38,709 or 16% since February 2020,” Russell Galley, Halifax managing director, commented.

On the news, property developers Barratt Developments PLC (LSE:BDEV) and Taylor Wimpey PLC (LSE:TW.) fell 3.0% and 3.8% respectively.

12.05pm: Gold at US$2k, metal prices surge 

Sanctions imposed by the Western nations on Russia continue to send the prices of precious metals soaring, with gold testing the US$2,000 mark.

The traditional store of value gained 1.6% to US$2,000.40 per ounce, reaching US$2,002.41 earlier in the session.

Spot palladium also rallied, setting it on course for its biggest daily percentage rise in almost two years.

The metal, used largely by the automotive industry to manufacture catalytic converters climbed 11.8% to US$3,357.68 per ounce.

Russia accounts for 40% of the global production of palladium, with independent analyst Ross Norman adding “palladium is reflecting deep scarcity, and anticipation of further scarcity as things unfold in Ukraine and Russia.”

Price surges for other commodities, such as diamonds, nickel, and steel should also be expected, with Russia being a top-five producer of these goods, among others.

“The prospect of fresh sanctions on Russia, and moves to ban the purchase of commodities supplied by that country, is driving up prices of oil, gas, wheat, nickel, copper and others, in some cases to new all-time highs, not least because supply of many of these precious raw materials was already tight,” according to AJ Bell investment director Russ Mould.

11:50am: Price rises should only be shortlived, say UBS

As commodity prices continue to rise, growing at their fastest weekly rate since the 1970s, UBS Group AG (NYSE:UBS) believes the supply shocks will only be short-term. 

Inflationary pressures in Europe, price-induced demand destruction and increased Chinese exports meant they were not sustainable in the long term.

The broker said that China’s internal struggles meant it was likely keen to ship out more metals this year, after lower supply linked to Covid last year decelerated price rises.

“With the property market still weak, Covid impacting domestic consumption and export demand likely to be impacted; in our view metals supply growth exceeding demand growth in 2Q21 will result in increased exports/lower imports,” the broker said.

“In our view this will be a key offset to European/Russian supply disruption.”

But in the short run, inflation has yet to eat into Western demand for commodities, while supply remains squeezed.

11:20am: Airline industries hit worst on FTSE

Melrose Industries PLC (LSE:MRO, OTC:MLSPF), engineer and GKN Aerospace owner, gave up the most of all FTSE 100 companies on late Monday morning, easing 7.8% lower to 112p – an 18-month low.

Meanwhile, British Airways owner International Consolidated Airlines Group (LSE:IAG) SA was only slightly outpaced, in terms of decline, slipping 7.2% lower to 114p.

The airline industry, and other highly fuel-dependent sectors, took the biggest hit as Brent Crude Oil (LSE:BRENT) prices soared over US$130 a barrel to reach 14-year highs.

The FTSE 100 was still experiencing triple-digit falls, with 124 points lost compared with Friday’s close.

10am: More companies pull out of Russia

Visa (NYSE:V)Mastercard (NYSE:MA), Netflix Inc (NASDAQ:NFLX) and Tiktok are the latest companies to limit or suspend services in Russia following its invasion of Ukraine.

Two of the big four accounting firms, KGMG and PwC, also said they would no longer have a member firm in Russia.

Visa (NYSE:V)'s chief executivae Al Kelly said: "We are compelled to act following Russia's unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed."

(Read more on the story here)

9.35am: Banks fall hard 

Banks are among the big fallers on the FTSE, with Lloyds Banking Group PLC (LSE:LLOY) down almost 8%, and Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG) not far behind.  

The European Stoxx banks index is at lowest in 13 months, as slower growth also weighs on prospects, as well as any Russia exposure.

The FTSE is down 126 points or 1.8% at 6,860.37, though this decline is not nearly as bad as the 3%-plus seen across most European bourses.

London's strong commodities weighting is the reason, with Shell up 5% and BP 2%, miners on the front foot and two Russian rebounders topping the leaderboard.  

With oil prices soaring, European gas prices surged to a new all-time high, stocks down and gold at $2k, is this the "new world order of stagflation and bear markets" wonders market analyst Neil Wilson at Markets.com.

With self-sanctioning only removed so much from the oil and gas market, it was only a matter of time before we got to the point of banning Russian hydrocarbons because of the escalation in the conflict and targeting of civilians, says Wilson. 

"Moving forward, if there is a ban, how do you turn it back on? That would mean longer-term repercussions and elevated pricing. If anything the back months need to catch up with the barrels-at-any-price action in the front month.

"We are already seeing a major oil shock that will reverberate for years. What happens next? Probably more strategic reserve releases – not that it will make much of a dent. Does the White House get US companies to increase production? Has Biden picked up the phone to the Saudis? There is some spare capacity but not much. Meanwhile Russia is delaying the final agreement of a new Iran nuclear deal that would bring perhaps 500k-1m [barrels of oil per day] to the market."

With wheat, palladium and nickel prices surging, this is a further reflection of panic, and Wilson says investors should expect prices to "remain high and the action volatile".

A slump for equities is no surprise, he says, "no other thing they can do in this environment as investors hit peak defensive".  

8.49am: Bigger lurch lower, gold at US$2k

With almost an hour gone, the Footsie was down almost 200 points in the high 6,700s for the first time since April last year.

Cryptocurrencies are also being hit, along with equities, with Bitcoin slipping below the US$40K mark during the weekend.

"The safe haven flows didn’t come to the rescue, whereas the traditional safe haven assets are heavily in demand since the opening bell," said analyst Ipek Ozkardeskaya at Swissquote.

The US dollar index looked prepared to flirt with the 100 mark for the first time since May 2020, as gold hits $2000 an ounce.

Sterling, meanwhile, is down 0.3% against the dollar at 1.3175. 

8.40am: Initial lurch lower

The market's initial lurch lower wasn’t quite as bad as predicted, but it will have had some stomachs churning as the FTSE 100 lost 96 points in a busy first half-hour to trade at 6,890.97.

Oil prices, which hit US$139 a barrel in the early hours of Monday, provided the shock to the system - only around $8 below the all-time high of $147.50 set in July 2008.

While off their session peaks, Brent crude futures were up around 10% at US$130, a 13-year high, amid fears the West could boycott Russian oil.

The cost of the most commonly used metals also jumped higher, along with soft commodities such as wheat and corn, stoking worries of rampant inflation coupled with zero or falling economic growth – a toxic cocktail called ‘stagflation’.

Concerns the war in Ukraine could become a protracted and internationally damaging affair continued to haunt international stock markets. It also laid low the euro, which is now trading on a par with the Swiss franc.

On the market, the major miners and the oilers were in demand. The big risers were Anglo American PLC (LSE:AAL), Glencore PLC (LSE:GLEN) and Shell PLC (LSE:SHEL, NYSE:SHEL), which were up between 6% and 6.5%.

Russia focused steelmaker Evraz PLC (LSE:EVR) was up 29% on opportunistic buying after losing 90% of its value in the past two weeks.

On the downside, the conflict in Ukraine hit the travel stocks hard. British Airways owner IAG (International Consolidated Airlines Group (LSE:IAG)) fell 8.5%, while TUI AG (LSE:TUI) and Wizz Air Holdings PLC (AIM:WIZZ) were each off 11%.

The end to takeover talks with Spectris wiped 22.5% off Oxford Instruments PLC (AIM:OXIG).

6.55 am: Triple-digit decline predicted 

The FTSE 100 looks set to post a triple-digit reversal against a backdrop of sharply rising oil prices that have precipitated worries about ‘stagflation’.

Brent crude, up 10% at US$129.83, briefly flew above US$139 a barrel amid worries the US and Europe are ready to slap an export ban on Russian supplies.

Indeed, all the major commodities – metals, wheat, corn – are on an upward trajectory.

This has heightened concerns for further, punishing price rises at the petrol pumps and in the supermarkets that will inevitably hit the global cost of living.

“It is these concerns over slowing growth across the world, as well as surging commodity price inflation that is also acting as a headwind for stock markets more broadly and is the biggest challenge facing central banks all over the world, starting with the European Central Bank later this week,” said Michael Hewson of CMC Markets.

“While the outlook for economic growth has darkened, the picture for inflation is even worse as energy and agricultural commodity prices have soared since the start of the year, and this toxic cocktail poses a huge problem for central banks.

“Do they tighten monetary policy and risk pushing the world into a recession even quicker, or do they allow inflation to rip even higher, which would do the same thing. This week’s US CPI numbers for February are set to highlight this problem even more starkly.”

In Ukraine, the conflict looks likely to be a protracted one with the UK’s head of the armed forces, Admiral Sir Tony Radakin, suggesting the Russian could currently be losing momentum after sustaining significant early losses.

With no end to the current hostilities in sight, the prospect of a protracted war in Ukraine, allied to the aforementioned economic pressures, hit the euro hard.

Overnight it was at parity with the Swiss franc, with traders beating a retreat for haven currencies.

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