European market opened deeply in the red on Monday, after Western nations ratcheted up their sanctions against Russia for its invasion of Ukraine.
However, makers of military gear were rising after Germany reversed a long-standing policy against exporting weapons to combat zones.
At the weekend, the US and EU said they would exclude some Russian banks from the international bank payments system SWIFT and personally targeted Russian President Vladimir Putin and Foreign Minister Sergei Lavrov.
The FTSE 100 index was down 71.96 points, or 1.0%, at 7,417.50 early Monday. The mid-cap FTSE 250 index was down 124.02 points, or 0.7%, at 20,782.73. The AIM All-Share index was down 3.35 points, or 0.3%, at 1,026.95.
The Cboe UK 100 index was down 1.0% at 737.24. The Cboe 250 was down 0.5% at 18,520.78, and the Cboe Small Companies down 0.1% at 14,871.50.
In mainland Europe, the CAC 40 in Paris was down 2.2%, while the DAX 40 in Frankfurt was down 2.1% early Monday.
In the FTSE 100, BAE Systems was the best performer, up 14%, after Germany on Sunday announced a ‘historic’ shift in its foreign and defence policy.
Hours after Germany dramatically reversed its ban on lethal weapons exports to conflict zones by announcing huge shipments to Ukraine, Chancellor Olaf Scholz said €100 billion will be earmarked for investments for the army in 2022 alone.
Jefferies analyst Chloe Lemarie said defence is now ‘top of mind’ for all European investors following Germany's significant step up in its armed forces budget.
‘With the open war situation in Ukraine, and NATO forces being deployed to neighbouring countries, defense consumables (ammunition, countermeasures etc) should be the first products to experience restocking & order uplift...We see BAE's Northern Europe exposure to land defense as a key asset,’ Lemarie said.
Midcap defence names were among the best performers, with Chemring up 10%, Qinetiq up 8.1%, and Babcock International up 7.4%.
Bunzl was up 2.8% after the distribution firm said it continued to perform strongly during the virus pandemic and was confident in its 2022 prospects.
For 2021, Bunzl posted a pretax profit of £568.7 million, up 2.3% from £555.7 million in 2020, on revenue of £10.29 billion, up 1.7% from £10.11 billion. Bunzl declared a 57.0 pence annual dividend, up 5.4% from 54.1p paid out in 2020.
Looking ahead, Bunzl expects moderate revenue growth in 2022, driven by acquisitions completed in the past 12 months and supported by a slight increase in organic revenue.
At the other end of the large-caps, Russia-focused metals and mining stocks Evraz and Polymetal International were by far the worst performers, down 20% and 43% respectively. In the FTSE 250, Russian gold miner Petropavlovsk was the biggest faller, down 25%. Eastern Europe-focused airline Wizz Air was 15% lower.
Ferrexpo was up 4.8%. The iron ore pellet producer in the Ukraine has decided to delay the publication of its full-year results, originally set for March 16. The company said the situation in Ukraine remains ‘complex and changeable’ and is aware of reports of the Ukrainian railway network providing limited capacity to its freight customers. The stock remains down 45% over the past two weeks.
BP was down 5.7%. The oil major said its decision to exit its stake in Russia's Rosneft will not harm its ability to increase payouts.
Over the weekend, BP said it will sell its near 20% stake in Russian oil producer Rosneft, which it co-owns with the Kremlin, after facing pressure from the UK government.
BP said the exit from Rosneft shareholding does not change its distribution guidance and its financial frame guidance remains unchanged. The oil major said it still expects to have capacity for 4% annual increases in dividend through 2025. It also still expects to deliver a 7% to 9% compound annual growth rate in earnings before depreciation and amortisation to 2025.
Still, BP said it will report a material non-cash charge in its first-quarter results in May, due to the required changed accounting treatment of the Rosneft stake.
Associated British Foods was down 3.0%. The Primark clothing chain owner forecast higher first-half sales and adjusted operating profit.
For the six months ending March 5, AB Foods expects sales and adjusted operating profit to be strongly ahead of a year before. It also expects sales and adjusted operating profit to be ahead of the pre-Covid levels achieved in the half year to February 29, 2020.
At its Primark clothing stores, sales for the first half are expected to be over 60% ahead of last year at constant currency with an operating profit margin of around 11%.
In addition, AB Foods highlighted that its other businesses have faced supply-chain disruption and has raised prices in some divisions, including grocery, to offset higher energy and commodities costs.
In Asia on Monday, the Japanese Nikkei 225 index closed up 0.2%. In China, the Shanghai Composite was ended up 0.3%, but the Hang Seng index in Hong Kong lost 0.8%. The S&P/ASX 200 in Sydney closed up 0.7%.
The pound was quoted at $1.3372 early Monday, down from $1.3409 at the London equities close Friday.
The euro was priced at $1.1183, down from $1.1258. Against the safe-haven yen, the dollar was trading at JP¥115.53 in London, lower against JP¥115.61.
Brent oil was quoted at $102.41 a barrel Monday morning, up sharply from $97.16 at the London equities close Friday. Gold stood at $1,899.90 an ounce, up from $1,887.00 late Friday.
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