Russia’s invasion of Ukraine has caused turmoil in equity, commodity, and foreign exchange markets worldwide

By Suzanne Evans, Director, Political Insight

Russia’s invasion of Ukraine has caused turmoil in equity, commodity, and foreign exchange markets worldwide. The price of crude oil has surged past $100 a barrel - (briefly hitting $105 for the first time since September 2014) - gas prices have climbed 73%, and global stock markets have plunged. The threat of a wider conflict, additional sanctions and higher inflation arising from President Vladimir Putin's order to attack prompted a rush of activity on global markets, first felt in Asia where stock markets were widely down by 3%, Sky News says. In London, the FTSE 100 closed 3.9% lower yesterday, wiping £77bn off the value of listed companies and the biggest percentage drop since June 2020. France's CAC index and Germany's DAX were also each off by nearly 4%. On Wall Street, stocks opened sharply lower but later recovered to end the session higher after western leaders announced tough new sanctions. Meanwhile, investors sought sanctuary in safe havens such as gold and the US dollar - sending the pound nearly three cents lower versus the greenback to less than $1.33 though sterling later pulled back some of that decline. Russia's own stock market fell sharply, and the value of the rouble collapsed to a record low, losing almost 40% of its value.
 
The price of Bitcoin plummeted yesterday as global markets reacted to Russia's invasion of Ukraine. It tumbled to its lowest level in a month, crashing as much as 10% to $34,046 (£25,403), as Kyiv faced missile attacks and its airport was reportedly captured by Russian troops. Yahoo Finance UK says the fact Bitcoin diminished its market value by 8% to $665bn in the last 24 hours, according to data from CoinMarketCap, has dealt a severe blow to claims that the cryptocurrency is 'digital gold' and a safe haven.
 
Bank Investec said the conflict, along with surging global demand, had made gas and electricity prices soar. It expects the energy price cap, which limits what suppliers can charge, to hit £3,238 a year for the average home when it's next adjusted in October. The cap is already due to rise by £693 to £1,971 in April.
 
The BBC’s Faisal Islam says the economics of this invasion are “extremely serious” and “could very plausibly herald a 1970s style energy shock” that will be felt in households up and down the country and across the continent. “The combination of crude oil prices above $100 and wholesale gas pricesaround £3 per therm, would mean the peak in inflation heading to 8% or higher, and, importantly, lasting at very high levels for longer,” he writes. “Crippling rises in household energy bills are already happening as a result of the existing rise in the average market gas price. It is now going still higher. There could be another rise in average bills of the same magnitude as is being seen now.”
 
Prime minister Boris Johnson is said to be “pushing very hard” for Russia to be removed from the Swift international payment system after President Vladimir Putin invaded Ukraine yesterday. If carried through, the ban would affect Russia’s ability to trade beyond its borders. However, German chancellor Olaf Scholz is against the idea, Yahoo Finance UK says. The Society for Worldwide Interbank Financial Telecommunication, legally known as Swift, is a Belgian co-operative, serving as an intermediary between banks worldwide, and facilitating trillions of dollars’ worth of transactions. It is used by more than 11,000 banks and financial institutions spread across more than 200 countries and handles some 42 million messages each day. It is overseen by central banks in the United States, Japan and Europe.
 
BP is under renewed pressure to abandon its stake in the oil giant Rosneftafter PM Boris Johnson said Britain must reduce its reliance on Russian hydrocarbons. The FTSE 100 oil firm has held a 20% stake in Russia's state-owned gas company Rosneft for 10 years, The Telegraph says. Rosneft is run by Vladimir Putin's close friend and ally Igor Sechin, and BP's CEO Bernard Looney sits on Rosneft's board. The stake has drawn fresh criticism from MPs amid Russian aggression in Ukraine. Liz Saville-Roberts, Plaid Cymru MP for Dwyfor Meirionnydd, asked the PM whether the Government would consider forcing UK companies to end their Russian relationship. She said: "We must now hit Putin where it hurts. As of this morning, BP's website proudly proclaims that it is 'one of the biggest foreign investors in Russia', owning nearly 20%c of Russia's oil giant, Rosneft. Rosneft also has a secondary holding in London. Will the Prime Minister commit to imposing legally mandated divestment by UK firms in Russia, and if not now, when?"  Johnson replied: "We have to recognise the lesson of 2014, which is that we have to move away from a dependence on Russian hydrocarbons, and the Government will pursue policies to that end."
 
The government's £1.9bn kickstart scheme will support far fewer young people than initially anticipated, a new report published today says. The Public Accounts Committee (PAC) said early delivery of the "emergency intervention scheme was "chaotic" and that the Department for Work and Pensions(DWP) had “neglected" to put in place "basic management information that would be expected for a multi-billion-pound grant programme". More than a year since its launch, and with "stronger than expected economic growth", DWP is now forecasting that kickstart will support 168,000 young people and will cost £1.26bn. It was previously predicted to support 250,000 young people into employment. The kickstart programme was announced by chancellor Rishi Sunak in July last year as part of his plan for jobs. The scheme offers six-month jobs to young people aged 16 to 24 years old who are currently claiming universal credit and are at risk of long-term unemployment. Dame Meg Hillier MP, chair of the PAC, said: "There are very unfortunate similarities across Government’s Covid response schemes: rushed implementation and too little track kept of whether a scheme was delivering what it promises – even given the unprecedented pressures at the start of the pandemic. In this case the department simply has no idea whether this scheme was worth the money, not least because it has little idea what was delivered".
 
A Confederation of British Industry (CBI) suggests shoppers returned to UK high streets in February, as sales were above seasonal norms.  The survey of retail outlets showed a balance of +16 for February, as compared with -23 for January. The balance is the difference between respondents reporting an increase and a decrease. The strong result was led by furniture and carpets, reflecting the busy housing market, and footwear and leather, Sharecast Newssays. Department stores showed healthy improvement, but clothing was in the doldrums. Internet sales declined in the year to February for only the second time in the survey's history as shoppers returned to physical stores.
 
FTSE 100 defence company BAE Systems has reported a rise in full-year earnings. Underlying earnings before interest and tax for 2021 increased 13% to $2.2bn, with revenue up 5% at $21.3bn. Shares in BAE, the UK’s biggest defence company, soared over 6% after Russian troops invaded Ukraine in the biggest attack in Europe since the Second World War.
 
Government outsourcing contractor Serco reported better-than-expected full-year profit yesterday, driven by coronavirus-related contracts, and rebound in leisure and transport contracts. The FTSE 250 company, which managed a fifth of the UK’s Covid testing sites and operated contact-tracing call centres, said underlying trading profit rose to £228.9m from £163.1m. Pre-tax profits rose to £192.2m compared with £153.3m in 2020. Revenue increased to £4.42bn from £3.88bn a year earlier. The company said it had won £700m in Covid-related contracts worldwide in 2021, taking its total pandemic-related income to £1.1bn.
 
FTSE 100 global mining company Anglo American has posted record full year earnings of $20.6bn (£15.3bn) and more than tripled its annual payout to shareholders, as soaring commodity prices boosted profits. Earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 111% to $20.6bn, from $9.8bn in 2020, with profits attributable to shareholders rising to $8.6bn.
 
Shares in Rolls-Royce crashed over 18% yesterday when the company announced chief executive Warren East was to step down at the end of 2022 after nearly eight years in the role. Analysts at AJ Bell told Yahoo Finance UKthat the announcement wiped £1.8bn off the engine giant's value. Russ Mould, investment director at AJ Bell said. "Rolls-Royce was in a very tricky spot when he took over, with a string of damaging profit warnings in the early 2010s and a serious cash flow problem."

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