Ukraine invasion: losses accelerate on FTSE 100 as commodities rocket in price and spectre of stagflation hovers

by | Mar 7, 2022

  • Oil and gas rocket in price as Russian energy ban mooted.

  • FTSE 100. DAX and CAC 40 losses accelerate on the open.

  • Travel, banking and retail stocks hit hard amid worries.

  • Difficult decisions ahead of central bank policymakers.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown comments on how the ongoing situation and invasion of Ukraine is impacting markets and economies

‘’As oil and gas rockets in price and worries about the effect on global growth rise, the spectre of stagflation is hovering over financial markets. The FTSE 100 has retreated further away from the psychological 7,000 mark as investors asses the impact on the worsening situation in Ukraine on soaring inflation and the potential of stumbling growth. Losses accelerated in early trade with travel, banking and retail shares plummeting as worries mount about the knock on effect of the crisis. On European exchanges the drop in confidence was even more severe with the DAX in Frankfurt and the CAC 40 in Paris plummeting by more than 4%.

Russia looks increasingly embedded in the conflict, and with relentless bombardments of Ukrainian cities and human tragedy continuing, speculation is that the US and Europe will retaliate by banning Russian energy exports. That would would have a ricochet effect on their economies, with a supply squeeze on global markets, pushing up prices for industries across the board and making the cost of living crisis even more painful. This piles pressure on central bank policymakers, who are faced with the increasingly difficult tightrope to tread of trying to bring down inflation by raising rates, which will make overall costs more unbearable, potentially tipping economies back into a downturn.

A barrel of Brent crude jumped 15% earlier to its highest point since 2008, spiking at $139, before settling back at just over $126. This is still a very uncomfortable level for companies and consumers who are set to pay the price in terms of yet higher higher transport costs. European natural gas prices have exploded since the start of the year and soared to fresh all time highs above €240 per megawatt-hour earlier today. If Russian exports are turned off, it will leave a huge gap in European energy needs, given the country accounts for more than 30% of the region’s natural gas imports.

With commercial exports from Ukrainian ports suspended, and sanctions causing shipping companies to steer clear from the Black Sea, exports of wheat from the region have been shrinking dramatically. That has pushed up prices on exchanges to hit a 14 year high of $12.49 a bushel earlier. Louis Dreyfus Co, one of the world’s largest agricultural commodity merchants has now suspended operations in Russia, which is set to constrain supplies further. The unstoppable march of commodities upwards is fuelling fears the world is facing a global food crisis, with countries like Egypt, which relies on global markets for more than half its staples, facing an increasingly dire situation.

British Airways owner, International Consolidated Airlines Group has flown into severe turbulence today with shares down by nearly 10% in early trade, as investors fretted about mounting fuel costs and the loss of confidence among the travelling public.  There were big falls for engineer Melrose, down by nearly 8%, amid worries about its exposure to the conflict given its large aerospace business. Packager Mondi was among the biggest fallers in early trade, as concerns about a knock to profits rise, given that it’s already suspended production at a plant in Ukraine, and its Russian plant, Syktyvkar accounted for 12% of the group’s revenue in 2021. JD Sports is among the big fallers on the index today after it announced it was climbing into the fortress built up to isolate Russia from the corporate world by stopping all online and wholesale trade in the country. Although, according to the company, these account for just 0.05% of annual revenues there are also worries afoot that the intensifying cost of living squeeze could mean many shoppers will face very stark choices going forward and new sports gear may be crossed off the shopping list.

Banking stocks have also been beaten down amid concerns the lending and investment business could trigger a broader slowdown which will limit consumer spending and corporate borrowing. The move by Visa, MasterCard and Amex to stop transactions is likely to be adding to negative sentiment. It will stop globally issued cards working in shops and cash points in Russia and Russian issued cards will cease working outside the country, shutting out big spenders from will hurt a raft of businesses reliant on their transactions.  ‘’

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