European markets sink as Putin threatens to cut off gas supply

European markets ended March in the red as concerns about energy supply shortages and uncertain progress in the peace talks between Russia and Ukraine weigh on markets.

The FTSE 100 (^FTSE) lost earlier gains, closing down 0.6%. France’s CAC (^FCHI) was 1.1% lower and the DAX (^GDAXI) fell 1.2% in Frankfurt.

It comes after Russian president Vladimir Putin threatened to cut off gas supplies to Europe if countries refuse to pay in rubles. Putin said he had signed a decree saying customers must pay in the local currency from 1 April or their contracts will be terminated. The G7 has previously rejected the demand.

“The first quarter of 2022 has been a rough one for investors to navigate. Volatility has been the name of the game as levers were pulled to curb rising prices, and war undermined many of those efforts,” said Danni Hewson, financial analyst at AJ Bell. “Of the ten main global indices only London’s blue-chip FTSE 100 has emerged from the last three months in better shape than it went in, boosted by miners and energy giants cashing in on runaway commodity prices.”

Meanwhile, the latest figures showed that Britain’s economy grew faster than previously thought in the fourth quarter of 2021, when the nation was battling a surge in Omicron cases.

UK gross domestic product (GDP) expanded 1.3% in the last three months compared to the previous quarter, according to the ONS. This was above market expectations of 1%. The growth puts the economy just 0.1% below its pre-pandemic level.

However, analyst have warned that the uptick could be surface level and further trouble could be brewing for the UK economy in the coming months.

“Although growth was marginally upgraded for the October to December period to 1.3%, it came before the full impact of Omicron hit and well before commodity chaos was unleashed by the invasion of Ukraine,” said Susannah Streeter, senior investor and markets analyst at Hargreaves Lansdown. “On the face of it, it could be viewed as a snapshot that the economy was in slightly better shape to withstand the impact of a fresh round of pummelling.”

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Read more: UK economy grows more than expected but household savings drop

Oil market volatility continued on Thursday, with benchmark prices dropping sharply after the US took steps to cool crude prices that are feeding into soaring inflation across the US economy.

The Joe Biden administration announced its releasing as much as 180 million barrels in the next six months from its Strategic Petroleum Reserve. This means around one million barrels will be released per day, draining nearly a third from its emergency reserves.

It comes as the Organisation of Petroleum Exporting Countries and allies, which includes Russia, said it will stick to oil output increases, resisting industry pressure to pump more crude to fill supply gaps.

The cartel will add 432,000 barrels of oil per-day to the market from May.

Brent crude (BZ=F) fell 5% to $107.82 a barrel. US light crude (CL=F) was 5.9% lower to $101.48 in electronic trading on the New York Mercantile Exchange at the time of writing.

Across the pond, US benchmarks opened in a sea of red on Thursday as the Ukraine war, commodity price concerns and soaring inflation dampens investor sentiment.

Wall Street’s S&P 500 (^GSPC) fell 9.48 points, or 0.2%, to 4592.97. The tech-heavy Nasdaq (^IXIC) lost 0.3%. The Dow Jones (^DJI) was down 0.4% on London’s close.

It came as US jobless claims rose more than expected last week, but levels remain low amid a tight labour market. Initial unemployment claims increased by 14,000 to 202,000 in the week ended 26 March, Labour Department data showed Thursday.

Richard Hunter, head of markets at Interactive Investor said: “The more recent rebound in US markets will not be enough to stem the declines as markets move into the last trading day of the quarter, with the Dow Jones down by 3.1% and the Nasdaq by 7.7%.

“For the benchmark S&P500, which has lost 3.4% so far, the likely quarterly decline would be the first since the opening quarter of 2020, as the COVID-19 pandemic was beginning to take full effect.”

Read more: Cost of living crisis: UK shop prices rise at highest rate since 2011

Overseas markets sank after Chinese manufacturing weakened and Russian shelling around Kyiv diminished hopes of a ceasefire. The MSCI’s broadest index of Asia-Pacific (AAXJ) shares excluding Japan was dipped 0.3%.

Asian stocks slumped in the red overnight with the Nikkei (^N225) declining 0.7% in Japan, while the Hang Seng (^HSI) slumped 0.8% in Hong Kong and the Shanghai Composite (000001.SS) drifted 0.3% lower.

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