Russia long-dreaded invasion of Ukraine sent stock markets reeling and safe-haven assets soaring on Thursday, with oil prices jumping above $100 a barrel for the first time in more than seven years.
After weeks of warnings from the US and other powers, the Kremlin ordered a wide-ranging offensive into its neighbour, days after saying it would provide ‘peacekeepers’ to two breakaway regions.
The FTSE 100 index was down 174.24 points, or 2.3%, at 7,323.76 early Thursday. The mid-cap FTSE 250 index was down 448.23 points, or 2.1%, at 20,393.20. The AIM All-Share index was down 21.62 points, or 2.1%, at 1,010.29.
The Cboe UK 100 index was down 2.3% at 728.26. The Cboe 250 was down 2.2% at 18,293.41, and the Cboe Small Companies was down 0.6% at 15,057.12.
In mainland Europe, the CAC 40 in Paris was down 3.5% and DAX 40 in Frankfurt was 4.0% lower.
Russian President Vladimir Putin said in a surprise statement on television: ‘I have made the decision of a military operation.’
He also vowed retaliation against anyone who interfered and called on the Ukraine military to lay down its arms.
US President Joe Biden condemned the ‘unprovoked and unjustified attack by Russian military forces’ and urged world leaders to speak out against Putin’s ‘flagrant aggression’. He vowed Russia would be held accountable.
In the FTSE 100, Mexican precious metals miner Fresnillo was the best performer, up 3.5%, amid a flight to safety lifted gold prices and after RBC Capital raised the stock to ‘outperform’ from ‘sector perform’. Midcap gold miners were among the best performers, with Hochschild Mining and Centamin up 2.0% and 1.1% respectively.
Spot gold stood at $1,940.12 an ounce, much higher than $1,906.84 late Wednesday.
At the other end of the large-caps, Russia-focused metals and mining stocks Evraz and Polymetal International were the worst performers, down 30% and 40% respectively. Steel maker Evraz is down 72% since the start of 2022 and miner Polymetal down 56%.
Rolls-Royce was down 14%. The jet engine maker said 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.
As a result, the board will now launch a ‘thorough and extensive’ search for his successor.
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.
Pretax 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. The decline in revenue was due to lower Civil Aerospace sales, while the Defence and Power Systems arms saw growth.
Looking ahead, Rolls-Royce said it expects to generate modestly positive free cash flow in 2022, seasonally weighted towards the second half of the year.
‘2021 results are underwhelming, in our view, at the operating profit level. The lack of margin improvement expected in 2022 is also disappointing, and will likely draw questions in the call. Free cash flow outlook is unsurprising given the weakness of long-haul air traffic. The CEO transition, in our view, is likely to generate pressure on the shares,’ said Jefferies analyst Chloe Lemarie.
Lloyds Banking was down 9.0%. The lender said 2021 was a year of solid financial performance with continued business momentum embodied by strategic execution, ongoing investment and continued franchise growth.
Lloyds generated net income of £15.76 billion in 2021, up 9% from £14.40 billion in 2020, though net interest income was down 9% to £9.37 billion from £10.75 billion. Even so, pre-tax profit was almost seven times higher at £6.9 billion from £1.2 billion, benefiting from higher income and a net impairment credit.
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 bank declared a 2021 total dividend of 2.0 pence, up sharply from 0.57p in 2020.
Lloyds also announced its intention to implement an share buyback programme of up to £2.0 billion, given the strong capital position.
As part of Chief Executive Officer Charlie Nunn’s new strategy, Lloyds intends to ‘drive revenue growth and diversification’ while ‘focusing on strengthening cost and capital efficiency’ by ‘maximising the potential of people, technology and data’. The move will see incremental investment of £3 billion over the next three years and £4 billion over the next five years.
‘Accelerating top line growth for a large bank such as Lloyds is never easy, and we suspect the market will be sceptical of delivery here, while taking the additional costs to achieve on the chin,’ said Shore Capital’s Gary Greenwood.
In the FTSE 250, Ukraine-focused iron ore producer Ferrexpo was the worst performer, down 16%, with Russian gold miner Petropavlovsk just behind, down 15%. Eastern Europe-focused airline Wizz Air was 10% lower.
In Asia on Thursday, the Japanese Nikkei 225 index closed down 1.8%. Tokyo reopened after a holiday on Wednesday. In China, the Shanghai Composite ended down 1.7%, while the Hang Seng index in Hong Kong lost 3.6%. The S&P/ASX 200 in Sydney closed down 3.0%.
Brent oil was quoted at $102.90 a barrel on Thursday morning, up sharply from $97.90 at the London equities close Wednesday. The North Sea benchmark breached the $100 mark for the first time since September 2014.
The pound was quoted at $1.3471 early Thursday, down from $1.3554 at the London equities close Wednesday.
The euro was priced at $1.1257, down from $1.1313. Against the safe-haven yen, the dollar was trading at JPY114.74 in London, lower against JPY115.06.
Thursday’s economic calendar has US gross domestic product and the latest jobless clams figures at 1330 GMT.
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