Despite weeks of anticipation, markets reacted with shock on Thursday to Russia’s invasion of Ukraine, with travel shares and anything connected to Russia dropping.
Conversely, oil was trading above $105 a barrel, its highest in more than seven years, while safe-havens such as gold, the dollar, the Swiss franc and the yen were benefiting.
Ten-year US Treasury yields narrowed sharply to 1.88% from 2.0%. Brown Brothers Harriman commented that US Federal Reserve policy tightening expectations have fallen a bit in response the military tensions.
The FTSE 100 index was down 236.36 points, or 3.3%, at 7,261.92 midday Thursday. The mid-cap FTSE 250 index was down 716.67 points, or 3.4%, at 20,124.85. The AIM All-Share index was down 32.11 points, or 3.1%, at 999.80.
The Cboe UK 100 index was down 3.0% at 723.37. The Cboe 250 was down 3.6% at 18,017.41, and the Cboe Small Companies was down 1.6% at 14,904.12.
In mainland Europe, the CAC 40 in Paris was down 5.0% and DAX 40 in Frankfurt was 5.1% lower.
The Russian army said Moscow-backed separatist forces in eastern Ukraine are advancing and have gained territory.
Military spokesperson Igor Konashenkov told state television that forces of the Donetsk People’s Republic gained ‘up to three kilometres’ in territory and those of the Lugansk People’s Republic ‘advanced one and a half kilometres’. He added that Russia had ‘high precision weapons’ and that Ukrainian civilians had ‘nothing to fear’.
Russia’s ground forces invaded Ukraine from several directions on Thursday, encircling the country within hours of President Vladimir Putin announcing his decision to launch an assault.
Ukrainian President Volodymyr Zelensky broke off Kyiv’s diplomatic relations with Moscow in response to Russia’s invasion. It marked the first rupture in ties since Russia and Ukraine became independent countries after the Soviet Union’s collapse in 1991.
Proposed new EU sanctions will block Russian banks’ access from European financial markets, among other things, European Commission President Ursula von der Leyen said.
The measures also include freezing Russian assets in the EU and banning important Russian economic sectors from accessing key technologies and markets.
ThinkMarkets analyst Fawad Razaqzada remarked: ‘Western nations are promising to roll out further sanctions against Russia following the invasion. So far, the sanctions haven’t been too severe, but following the Russian invasion, surely, they will now respond more profoundly in an effort to really hurt the Russian economy. That’s precisely why we have seen Russian stocks suffer a huge sell-off today. We simple do not yet know exactly how severe these sanctions will be or for how long, and what kind of a response we will get from Russia.’
In the FTSE 100, Mexican precious metals miner Fresnillo was the best performer, up 6.5%, as a flight to safety lifted gold prices and after RBC Capital raised the stock to ‘outperform’ from ‘sector perform’. Gold miners also were among the best performers in the FTSE 250, with Hochschild Mining and Centamin up 9.5% and 5.1% respectively.
Spot gold stood at $1,971.12 an ounce at midday, much higher than $1,906.84 late Wednesday.
BAE Systems was up 5.1% after the aerospace and defence company reported robust results for 2021, prompting it to raise guidance for additional growth in 2022.
The Farnborough, England-based company said sales rose 2.2% to £21.31 billion in 2021 from £20.86 billion in 2020. BAE posted pretax 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.
BAE Systems proposed a final dividend of 15.2 pence per share, taking the total payout for 2021 to 25.1p, up 5.9% from 23.7p paid out in 2020.
Anglo American was up 2.2%. The miner more than tripled its annual payout, as profit for 2021 more than doubled on the back of strong demand and a considerable rise in commodity prices.
Anglo posted underlying earnings before interest, tax, depreciation and amortisation of $20.63 billion, more than doubled from $9.80 billion in 2020. This was on revenue that grew 63% to $41.55 billion from $25.45 billion, restated from $30.90 billion to account for a change in
Anglo American declared a final ordinary dividend of $1.18 per share, and a special payout of 50 US cents. This brings the total payout for 2021 to $4.99, up sharply from $1.00 in 2020.
At the other end of the large-caps, Russia-focused metals and mining stocks Evraz and Polymetal International were the worst performers, down 37% and 27% respectively.
Rolls-Royce was down 19%. 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.
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. 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.
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, pretax 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 2.0 pence, up sharply from 0.57p in 2020.
Lloyds also said it will start a share buyback programme worth 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 following 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 iron ore producer Ferrexpo was the worst performer, down 30%, with Russia gold miner Petropavlovsk just behind, down 25%. Eastern Europe-focused airline Wizz Air was 14% lower.
Ferrexpo said its mining and processing facilities in Ukraine are still operating. The sites are located adjacent to the city of Horishni Plavni, in central Ukraine, where the situation remains stable. However, the government of Ukraine has now suspended rail transportation, it noted.
Brent oil was quoted at $105.18 a barrel on Thursday at midday, 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 and is up 35% so far in 2022.
The pound was quoted at $1.3387 at midday on Thursday, down sharply from $1.3554 at the London equities close Wednesday.
UK Prime Minister Boris Johnson said Putin has ‘chosen a path of bloodshed and destruction’ with his attack on Ukraine and that the UK and its allies would respond ‘decisively’.
Johnson said he is ‘appalled by the horrific events’ seen in the wake of Putin’s decision to conduct a military operation in Ukraine. The PM is due to make a televised address to the nation before speaking in the Commons in the evening.
The euro was priced at $1.1160, depreciating from $1.1313. Against the safe-haven yen, the dollar was trading at JPY114.70 in London, down from JPY115.06.
New York was called sharply lower in the wake of the invasion and ahead of US gross domestic product and the latest jobless claims figures at 1330 GMT.
The Dow Jones Industrial Average was called down 2.5%, the S&P 500 down 2.3%, and the Nasdaq Composite down 2.9%, based on futures trading. The indices closed down 1.4%, 1.8% and 2.6% respectively on Wednesday.
The tech-heavy index is facing the prospect of entering bear market territory - a 20% decline from its November record closing high.
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