Equity markets across the globe nose-dived on Thursday after Russia launched an invasion of Ukraine, with a massive shift to risk-off trade pummelling stocks and benefiting gold prices and the US dollar.
Worst hit in London were Russia-exposed stocks, such as Polymetal International and Evraz. Safe haven asset gold advanced as investors turned risk-adverse and oil prices shot up past $100 a barrel as investors brace for the next round of Western sanctions on heavyweight oil exporter Russia.
The FTSE 100 index tumbled 291.17 points, or 3.9%, to 7,207.01 on Thursday, marking its worst one-day performance since mid-2020.
The FTSE 250 ended down 587.08 points, or 2.8%, at 20,254.44, and the AIM All-Share closed down 24.29 points, or 2.4%, at 1,007.62.
The Cboe UK 100 ended down 3.8% at 717.38, the Cboe UK 250 closed down 3.1% at 18,104.94, and the Cboe Small Companies ended down 2.3% at 14,806.01.
In European equities on Thursday, the CAC 40 in Paris dropped 3.8%, while the DAX 40 in Frankfurt dived 4.0%. The RTS Index in Moscow crashed 38%.
Stocks in New York were in the red at the London equities close, with the Dow Jones down 2.1%, the S&P 500 index down 1.2%, and the Nasdaq Composite down 0.3%.
Global stock markets plunged on Thursday after Russian President Vladimir Putin launched a military assault on neighbouring Ukraine.
‘The Russian invasion of Ukraine is a serious geopolitical crisis with far reaching consequences. It will hurt near-term economic performance, especially in Europe, and provide an additional impetus for global investors to lower their risk exposure,’ said Berenberg.
Explosions were heard in the Ukrainian capital of Kyiv and other major cities on Thursday following Putin’s announcement that a military operation had begun.
The Russian president announced the action during a televised address early on Thursday morning, saying the move was a response to threats from Ukraine. The sound of distant blasts was picked up in a live broadcast from US outlet CNN, causing reporter Matthew Chance to put on a flak jacket.
US President Joe Biden was meeting with G7 allies to hammer out a raft of new sanctions, after a first raft proved ineffectual following weeks of Russian troop build-up on Ukraine’s border.
As well as the conflict itself, investors are nervously eyeing Russia’s impending retaliation against a raft of Western sanction.
‘The EU’s new unfriendly steps against Russia - as well as our brothers DNR and LNR - will not be able to stop our progressive development,’ the Russian foreign ministry said, referring to Ukraine’s separatist regions.
The US declared the Kremlin’s prize energy project, Nord Stream 2, dead this week as Russia sent troops to eastern Ukrainian breakaway regions, the so-called Donetsk People’s Republic and Lugansk People’s Republic.
Worries over sanctions battered Russia-exposed firms on the London Stock Exchange, with shares in precious metals miner Polymetal International collapsing 38% and steelmaker Evraz, which counts Russian billionaire Roman Abramovich as a major shareholder, dived 30%.
Polymetal in a statement noted the possibility of sanctions on Russian financial institutions and mining companies, but said targeted sanctions on the company itself ‘remain unlikely’.
‘Contingency planning has been initiated proactively to ensure business continuity, including selection of key equipment suppliers, liquidity management, debt portfolio diversification and securing sales channels,’ the company said.
Petropavlosk, which has mining operations in Russia, crumbled 27%.
Iron ore pellet producer Ferrexpo fell 43%, as it said mining and processing facilities, located near the city of Horishni Plavni in central Ukraine, remain operational - but noted that the Ukrainian government has suspended rail transportation.
The top performer in the FTSE 100 on Thursday was defence firm BAE Systems, rising 5.2% on the prospect of expanded defence budgets across Europe. The company also posted its 2021 results on Thursday, notching pre-tax profit of £2.11 billion, up 31% from £1.60 billion. This was on revenue of £19.52 billion, up 1.5% from £19.28 billion.
Both gold and the US dollar advanced as investors reduced holdings in riskier assets.
Safe haven gold was quoted at $1,924.11 an ounce at the London equities close Thursday, up against $1,906.84 at the close on Wednesday. Shares in London-listed precious metals miner Fresnillo, which has its core operations in Mexico, rose 4.0%.
The pound was quoted at $1.3353 at the London equities close Thursday, slumping from $1.3554 at the close on Wednesday.
The euro stood at $1.1148 at the European equities close Thursday, dropping from $1.1313 at the same time on Wednesday.
Against the yen, the dollar was trading at JP¥115.43, up compared to JP¥115.06 late Wednesday.
Also rising were oil prices, with Brent oil quoted at $104.19 a barrel at the London equities close Thursday, up from $97.90 late Wednesday and topping the $100 barrier for the first time since 2014.
London’s oil majors were mixed, however. Shell shares advanced a meagre 0.7%, though this was notable against a sea of red in London, while peer BP tumbled 4.6% amid concern over its near 20% stake in Russia’s Rosneft.
Compounding Thursday’s dire mood in London were some ill-received corporate updates.
Shares in jet engine maker Rolls-Royce fell 13% after saying Chief Executive Officer Warren East has decided to step down at the end of 2022, after nine years on the board and almost eight years as CEO of the jet engine maker.
The announcement came as the London-based firm reported an improved financial performance in 2021, driven by cost reduction as the Civil Aerospace market continued to suffer from the virus pandemic. Pre-tax loss narrowed sharply to £294 million in 2021 from a £2.80 billion loss in 2020. This was on revenue of £11.22 billion, down 2.3% from £11.49 billion.
WPP ended down 12% even after the marketing communications and advertising agency said it had a ‘exceptional recovery’ from the pandemic in 2021, as it swung to profit from a £2.79 billion loss the year before.
WPP said revenue for 2021 was up 6.7% to £12.80 billion from £12.00 billion, or up 13% on a like-for-life basis. Revenue less pass-through costs was £10.40 billion, up 6.5% from £9.76 billion in 2020, or up 12% like-for-like. WPP swung to profit in the year, with reported pretax profit of £951 million, from a pretax loss of £2.79 billion.
Lloyds Banking closed 11% lower after the lender’s 2021 profit failed to meet expectations. In 2021, Lloyds recorded pretax profit of £6.90 billion, sharply higher than £1.23 billion in 2020, but behind market consensus of £7.21 billion.
Positively, the bank plans to implement a share buyback programme of up to £2.0 billion, given its strong capital position. Common equity tier 1 ratio - a key measure of a bank’s financial strength - increased over the year to 17.3% from 16.2% in 2020.
The UK corporate calendar on Friday has full-year results from British Airways parent International Consolidated Airlines, online property portal Rightmove and education publisher Pearson - but given recent events, Russian steelmaker Evraz’s results are likely to dominate attention.
Friday’s economic calendar has German gross domestic product at 0700 GMT and eurozone economic sentiment at 1000 GMT, followed by US core personal consumption expenditures at 1330 GMT.
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