Sanctions trigger Russia financial markets turmoil, BP dumps Rosneft stake

The impact of sanctions against Russia today sent the rouble to its lowest ever level and prompted the country’s central bank to lift interest rates to 20%.

Oil prices also rose to as high as $105 a barrel and the FTSE 100 index opened sharply lower ahead of big falls for Wall Street markets later today.

BP shares have fallen 4% after the oil giant announced that it would offload the 19.75% stake it has held in Russia’s Rosneft since 2013.

FTSE 100 Live Monday

• Sanctions bring turmoil for Russia markets

• FTSE 100 falls more than 1%

• Defence stocks surge on Germany’s spending boost

Brent crude edges down to $100

15:26 , Simon Hunt

Brent crude prices have dropped below this morning’s highs to around $100 amid reports that the US is weighing up releasing oil from its Strategic Petroleum Reserve.

The US is working with the International Energy Agency as it considers releasing 30 million barrels, according to a report by Bloomberg.

The Strategic Petroleum Reserve has a crude oil inventory of just over 600 million barrels, according to the latest figures on its website, which amounts to about 3 years’ supply of total US petroleum net imports. The West is considering how to replace energy supplies if they were cut off from Russia.

LV= begins board room rebuild

15:25 , Oscar Williams-Grut

Insurance company LV= has moved to shore up its board in the wake of the failed sale to private equity group Bain Capital and confirmed that one of the architects of the botched attempt, chairman Alan Cook, has stepped down.

The financial services provider has appointed Suzy Neubert, an independent director at Witan Investment Trust, and Natalie Ceeney, former chief executive of the Financial Ombudsman Service (FOS), as non-executive directors.

Cook leaves with immediate effect and will be replaced by Seamus Creedon, who takes the position of interim chair.

Read the full story.

US equities down in early trading after Treasury sanctions

14:55 , Simon Hunt

Story continues

The US Treasury announced a ban on transactions with Russia’s central bank, National Wealth Fund and Ministry of Finance amid a fresh wave of sanctions on Russian entities and business tycoons.

The announcement prompted a return to havens and flight from banks, with the gold spot price nudging upwards while Citigroup opened down 3.4%.

US equities opened down on the news, with stocks exposed to Russia the hardest hit, including fast-food chain McDonald’s which dropped 1.8% and drinks maker ABInBev which dropped 4.1%.

The UK, France and Russia were McDonald’s strongest international growth markets in 2021, according to the company’s 2021 annual report, while ABInBev recently invested in a ‘Beer Academy’ in Russia, a training scheme to “foster a passion for brewing among promising university students in Russia and Ukraine,” according to the company’s website.

McColl’s sinks on rescue talks

14:54 , Simon Freeman

Convenience store chain McColl’s shares are down 60% after it confirmed talks to secure cash needed to stop it collapsing into administration.

The company, which employs around 16,000 people, is working with advisers to find a buyer or a third party willing to inject fresh funding.

It revealed that it recently received a full takeover approach from an unnamed suitor but that this has since been withdrawn.

Shares fell to a record low of 2.82p as McColl’s also warned that its earnings are set to miss targets for the year.

McColl’s told investors it “continues to believe that a financing solution will be found that involves its existing partners and stakeholders”.

The company’s board said it expects adjusted earnings for the current financial year to be “slightly behind current market expectations”, with a net debt of around £100 million.

Conflict marks difficult time for luxury goods, good news for defence firms

13:45 , Simon Freeman

In France, shares in luxury goods makers Louis Vuitton and Christian Dior dipped in early trading, amid the dual uncertainties of restricted sales in Russia and reduced demand in China as a result of the country’s zero-Covid policy.

China and Russia are the 2^nd and 12^th largest markets for luxury goods, according to Euromonitor data quoted by Bloomberg.

Meanwhile, as EU countries ramp up their support for Ukraine, a 25% surge in defence company (BA)E’s share price will be good news for the paper wealth of the company’s directors, who likely got a little closer to meeting their bonus performance targets today.

The bonus awards, which could involve a distribution of up to 8.9 million shares if directors meet their targets, are now worth about £11.5 million more than they were a week ago, based on share interests disclosed in the company’s 2020 annual report.

Oxford Instruments registers 33% leap

13:36 , Simon Freeman

Shares in Oxford Instruments have leapt by more than a third after it revealed it has been subject to a takeover approach by FTSE250 rival Spectris.

Oxford’s board said it was “minded to accept” the £31 a share offer – comprising £19.50 cash and £11.50 in new Spectris shares, with talks ongoing.

Oxford Instruments can trace its history back to 1959 when it was set up by Sir Martin Wood and his wife in the shed of their home to make superconducting magnets, key to development of the first MRI scanner.

Its equipment is now used in industry and research in fields ranging from nanoscience and plasma technology to gunshot residue analysis in forensic investigations.

Sir Martin died in November last year, age 94.

Company accounts show he and his wife Audrey holding stakes of a combined 4.9%, now worth around £300 million.

Shares were up 33% to 2650p.

Spectris was founded in 1915 as the Fairey Aviation Company to make seaplanes, was bought by Pearson in 1980 and listed on the LSE in 1988.

Now based in Egham, Surrey, it has grown through buy-ups of various specialist instrumentation and engineering firms and has a market valuation of £3.4 billion.

Shares in Spectris were down 10% to 2796p.

Russia in the red

13:20 , Simon Freeman

London-listed shares of Russian companies cratered after new sanctions were imposed on the country following its invasion of Ukraine. (Bloomberg)

Depositary receipts for Sberbank sank as much as 77%, while retailer Magnit slid 75%.

Energy giant Gazprom PJSC dropped 62%, before paring the loss.

With Russia’s central bank deciding to keep the Moscow exchange shut, Russian stocks listed in the UK provided a guage as to how they might react when they eventually resume trading on the local bourse.

Among other depositary receipts falling in London, Lukoil and Rosneft Oil Co. both slumped at least 40%.

The largest US-listed exchange-traded fund tracking Russian equities, VanEck Russia ETF, lost about a quarter of its value in early trading in New York.

Shell’s Russia links under fire

12:09 , Simon Freeman

BP’s surprise decision to dump its lucrative / controversial / untenable holding in Russia’s Rosneft sent its share price crashing 7%.

Other energy giants can expect to feel the heat.

Shadow energy secretary Ed Miliband has put Shell in the firing line.

FULL STORY HERE

Investors pile into (BA)E, Chemring and Darktrace

10:46 , Graeme Evans

Germany’s historic pledge to massively boost military spending triggered a fresh wave of buying of defence stocks today, with shares in (BA)E Systems as much as 14% higher.

(BA)E hit at a record 749p in the FTSE 100 index and is up by 25% over the past week as analysts at JP Morgan Cazenove said the Ukraine invasion had “fundamentally changed” the outlook for European defence stocks.

Other risers in London included MoD supplier Qinetiq and defence countermeasures firm Chemring after gains of 10% in the FTSE 250 index. Avon Protection, which provides military headgear, added 8%.

In Germany, shares in sensors firm Hensoldt jumped by as much as 84% after Chancellor Olaf Scholz announced an injection of 100 billion euros to modernise armed forces.

By 2024, Germany said it will spend at least 2% of gross domestic product each year on defence, while it also reversed a ban on weapons exports to conflict zones.

Jefferies said defence was now “top of mind” for all European investors, reversing a long period of pressure on budgets. Cyber security firms also attracted significant buying, with Darktrace shares up 8% in the FTSE 250 index.

Away from the Ukraine conflict, investors noted the safe haven appeal of outsourcing business Bunzl after its shares rose 6% on the back of annual results today.

The FTSE 100-listed company, which provides day-to-day essential supplies for supermarkets, hospitals and restaurants, reported earnings 5% ahead of expectations while it also boosted its outlook for 2022 trading.

Shares rose 6% or 168p to 2928p, which is the highest level this year. Other defensive stocks in demand included National Grid and Rentokil Initial after gains of 2%.

The FTSE 100 index fell 89.93 points to 7399.53, with airline stocks under pressure after most of Europe closed its airspace to carriers from Russia and Moscow retaliated with measures of its own.

Shares in British Airways owner IAG fell as much as 6% before settling 5.2p lower at 149.3p, not helped by a systems outage causing more than 150 short-haul flights to be cancelled over the weekend.

Defence shares surge amid spending boost

09:05 , Graeme Evans

Germany’s announcement of a significant increase in military spending sent London-listed defence stocks sharply higher today.

With other countries likely to boost their defence budgets, including in areas of cyber intelligence and protection, shares in (BA)E Systems surged in value.

FTSE 100-listed (BA)E jumped 13% to a new record of 741p, having risen by 25% in the past week. MoD supplier Qinetiq and defence countermeasures firm Chemring rose 8% while military headgear supplier Avon Protection lifted 6%.

JP Morgan said today that the invasion of Ukraine by Russia has “fundamentally changed the outlook for European defence stocks”. The bank upgraded its recommendation on Germany’s Hensoldt, with shares in the sensors business up by as much as 84% today.

FTSE 100 down 1%, BP 4% lower

08:27 , Graeme Evans

The FTSE 100 index has opened 1% lower, down 77 points to 7412.

BP shares are down more than 4% after it said last night that it would take a financial hit of up to $25 billion (£18.7 billion) as a result of dumping its 19.75% stake in Russia’s Rosneft.

Despite the significant financial cost and loss of Rosneft’s dividends, BP said it remains confident in the “flexibility and resilience” of its financial position.

This includes reaffirming the guidance for shareholder distributions – dividends and buybacks – up to 2025 that was given with February’s full year results.

BP, which has operated in Russia for 30 years, said its chief executive Bernard Looney had also resigned from the Rosneft board.

Russian gold miner Polymetal International and the steel producer Evraz were again under heavy selling pressure after falling 33% and 16% respectively. The potential boost to defence spending sent shares in (BA)E Systems up by more than 12%.

Pressure on Russia’s financial system

07:58 , Graeme Evans

The rouble opened 30% lower against the US dollar in offshore trading, but the fall has been much deeper on local retail currency exchanges.

London-based consultancy Capital Economics said today: “These are the conditions in which runs on local banks begin.

“The Central Bank of Russia has this morning raised interest rates to 20% but other measures (e.g. limits on deposit withdrawals) are possible later today.

“All of this will accelerate Russia’s economic downturn – a fall in GDP of about 5% now looks likely. Subsidiaries of some Russian banks overseas are likely to come under intense pressure (and may fail), but we judge that these are probably too small to create systemic risks.”

Rouble slides, interest rates up to 20%

07:56 , Graeme Evans

The rouble has fallen by more than 30% to its lowest level on record after significant new sanctions from the West triggered turmoil in Russian financial markets.

Most Russian banks are now excluded from the Swift global payment system and central bank reserves have been effectively frozen.

At its last estimate in June, Deutsche Bank said Russia had around $630 billion of foreign reserves of which a large portion still likely resides directly with G10 banks/central banks.

Deutsche Bank commentator Jim Reid said: “This is in effect a financial war now. The first-round impact of this news is likely to be turmoil in Russian markets today and a funding crisis.”

Russia’s central bank today responded to the slump in the value of rouble by raising interest rates from 9.5% to 20%, while also telling companies to sell their foreign currency revenues.

Fears that Russia retaliation may lead to a disruption of energy supplies led to a spike in the Brent crude price to as high as $105 a barrel before settling at around $103.

CMC Markets forecasts that the FTSE 100 index will open 110 points lower at 7379, having rallied prior to the weekend.

US futures markets are pointing to a fall of 2.5% for the S&P 500 and more than 3% for the tech-led Nasdaq index as US markets put back Friday’s gains.