Stocks tumble as Russia unleashes rockets on Kharkiv
European stocks tumbled on Monday after the UK, US, EU and Switzerland imposed additional sanctions to cripple Russia’s financial system as the Kremlin retaliated with a sweeping ban on airlines from 36 countries.
Officials from Russia and Ukraine held their first talks on Monday since the outbreak of war last week on the Belarus border, with Kyiv demanding an “immediate ceasefire” as over 500,000 refugees fled the country.
Meanwhile, Russia has announced its own retaliation against the west. The Kremlin banned airlines from 36 countries from using its airspace. Britain, Germany, Spain, Italy and Canada are all among the countries targeted in the move, which comes after most European nations blocked Russian planes from their airspace.
Switzerland, known for its neutral position said it will adopt all the measures already imposed by the EU on Russia over its invasion of Ukraine, including against president Vladimir Putin.
It comes after UK chancellor Rishi Sunak announced the UK was imposing financial sanctions on the Central Bank of Russia, Russian National Wealth fund and the country’s Ministry of Finance on Monday.
Foreign secretary Liz Truss said that the UK will hit Russian lender Sberbank (SBER.ME) with sanctions once new legislation is introduced.
She told the House of Commons: “We will bring in a full asset freeze on all Russian banks in days, looking to coordinate with our allies.
“This same legislation will prevent the Russian state from raising debt here and it will isolate all Russian companies, that’s over 3 million businesses, from accessing UK capital markets.”
The US announced similar moves, banning its citizens and companies from doing business with the Central Bank of Russia, its national wealth fund and ministry of finance.
The treasury department said the move would “effectively immobilise” any Russian central bank assets held in the US or by US nationals
The FTSE 100 (^FTSE) closed 0.3% lower as banks, energy and mining firms dragged London’s bluechip index down.
Mining company Polymetal International (POLY.L), which has the bulk of its operations in Russia, crashed 55.3% and Evraz (EVR.L), in which Russian billionaire owner of Chelsea FC Roman Abramovich is the largest shareholder with a 29% stake, plummeted 29%.
Oil giant BP (BP.L) crashed 7.5% after the firm was forced to sell its 20% stake in Russia-controlled energy firm Rosneft (ROSN.ME).
NatWest (NWG.L) lost 4.4%, while Barclays ((BA)RC.L) was 4.7% lower, HSBC (HS(BA).L) crashed 5% and Standard Chartered (STAN.L) was down 3% as western countries banned Swift payments in Russia.
Watch: Why markets were unprepared for the Russia-Ukraine crisis
Elsewhere in Europe, France’s CAC (^FCHI) was down 1.4% and the DAX (^GDAXI) lost 0.7% in Germany. The pan-European Stoxx 600 (^STOXX) index fell 1.2%, with banks and car manufacturers leading losses.
Investment funds have also announced their own moves against the Kremlin.
JPMorgan (JPM) and Danske Bank (DANSKE.CO) have frozen funds with exposure to Russian equities amid a plunge in markets.
This means JPMorgan clients won’t be able to buy or redeem shares in the JPM Emerging Europe Equity fund or its Russia fund, while Danske Invest Management announced it was suspending trading in its Eastern European fund.
Read more: How Russia’s war on Ukraine is impacting stock prices
Sterling (GBPUSD=X) rose 0.1% against the US dollar to $1.342 and was up over 0.4% against the euro (GBPEUR=X) as the UK announced measures to cripple Russia’s financial system.
Over the weekend, the UK, the European Union, the US and Canada agreed to cut off some Russian banks from the Swift network — a global payment system that connects international banks and facilitates cross-border financial transfers.
Russia’s central bank is also being cut off and blocked from deploying its international reserves. The country’s central bank has build up $630bn (£471bn) in reserves.
In response, Putin ordered his country’s deterrence forces — which includes nuclear arms — be put on high alert.
Read more: What is the Swift payment system the UK wants Russia thrown out from?
Analysts say that “fear over near-term supplies” will underpin strength in Brent, US light crude and natural gas prices.
The growing tensions momentarily pushed oil prices above $100 before retreating. Brent crude oil (BZ=F) was 2.1% higher to $99.90. The oil benchmark topped $105 a barrel in intraday trading last week, breaching that level for the first time since 2014. West Texas crude (CL=F) was up 3.5% to $94.78.
Natural gas (NG=F) rose 3.1% as the situation worsens.
Gold (GC=F) is emerging as a safe haven amidst the chaos as Russia’s invasion of Ukraine drives financial and commodity markets into a slump. The precious metal rose 1.6% to $1,916 a troy ounce.
The Russian rouble (RUB=X) dropped to an all-time low against the US dollar, plummeting nearly 30% as sanctions bite. It clawed back some ground, rising 16.9% to $98 at the time of writing.
The fall of the rouble has already heightened jitters over bank runs, with the country’s central bank raising its key interest rate to 20% from 9.5% to counter higher inflation and currency deprecation. It also plans to release about $7bn worth of bank reserves that had been set aside as a buffer for unsecured consumer and mortgage loans.
Putin has banned Russian citizens from transferring foreign currency abroad or servicing loans in foreign currency outside the country from 1 March. He also ordered Russian exporters to sell 80% of their foreign currency revenue dating back to 1 January to help offset the rouble’s sharp decline.
Additionally, the Moscow Exchange (IMOEX.ME) has suspended all its trading until 5 March.
“This weekend’s events now mean that no G7 banks will be able to buy Russian rubles, sending the currency into freefall, with the end result we could see a huge inflationary shock unfold inside Russia,” said Michael Hewson, chief market analyst at CMC Markets.
“A run on Russian banks inside the country appears to be already starting, as ordinary Russians fear that their credit cards might no longer work.”
Read more: How economic sanctions work
Across the pond, US benchmarks joined the global markets sell-off, starting the week in the red as the west ramped up sanctions amid the Russia and Ukraine talks.
Wall Street’s S&P 500 (^GSPC) fell 13.02 points or 0.3% to 4371.63. The tech-heavy Nasdaq (^IXIC) was 0.5% higher. The Dow Jones (^DJI) lost 0.6% at the time of London close.
Asian stock markets were mixed overnight with the Nikkei (^N225) rising 0.2% in Japan, while the Hang Seng (^HSI) sank to a 52-week low declining 0.3% in Hong Kong and the Shanghai Composite (000001.SS) was up over 0.3%.
Watch:How does inflation affect interest rates?
Stocks tumble as Russia unleashes rockets on Kharkiv