Oil and gold prices jump, Russian central bank hikes rates as rouble plummets – business live – The Guardian

As just reported, the European Central Bank has warned that the European arm of Russia’s biggest bank, Sberbank, could fail under the weight of sanctions.

Along with the escalation of the war in Ukraine, this has sent shockwaves through the European banking sector, with the European banking stock index falling 5.7%, compared with a 2.4% drop in the Euro Stoxx index of European bluechip shares.

The hardest hit, with the most exposure to Russia, were Austria’s Raiffeisenbank, which lost as much as 18%, while France’s Société Générale fell 11% and the Dutch banking group ING and Italy’s UniCredit both dropped about 10%.

Russian stock markets remain shut for now, but London-listed Russian companies have plummeted. Sberbank collapsed more than 70% and Gazprom fell 44%.

Robin Wigglesworth (@RobinWigg)

The Moscow Stock Exchange is shut for now, but Sberbank has a London listing and has just collapsed 74% on opening pic.twitter.com/HMWhB0jYz3

February 28, 2022

The European Central Bank warned that Sberbank Europe, the European arm of Russia’s biggest bank, and two other subsidiaries under its watch “are failing or likely to fail … owing to a deterioration of their liquidity situation”. Austria’s Financial Market Authority said it imposed a moratorium on Sberbank Europe, which is based in Austria.

While trading in London continues, Deutsche Börse, the German stock exchange operator, suspended a number of Russian companies from trading, including the country’s two biggest banks, Sberbank and VTB Bank.

The warning to rich Russians linked to Putin that the UK government “will come after you” and ensure oligarchs have “nowhere to hide” is likely to hit hard at the gated luxury housing estate in Surrey dubbed “Britain’s Beverly Hills,” reports our wealth corrrespondent Rupert Neate.

Russians and those from former Soviet states own more than a quarter of the 430 luxurious homes in St George’s Hill, a heavily guarded 964-acre estate near Weybridge, Surrey, where mansions have changed hands for more than £20m each.

Liz Truss, the foreign secretary, said on Sunday that the government was drawing up a “hitlist” of oligarchs with links to Putin who will be added to the sanctions list in coming days and weeks.

Here is our full story on the Central Bank of Russia’s emergency measures:

Russia’s central bank has more than doubled interest rates to 20%, and banned foreigners from selling local securities, in a bid to protect its currency and economy in the face of international sanctions over the invasion of Ukraine, writes my colleague Mark Sweney.

The rate rise, from 9.5%, is aimed to balance the precipitous fall in value of the rouble and surging inflation as the country braces for its financial markets to take battering this week.

Currency trading got under way in Moscow, but other markets were delayed from opening until at least 3pm.

European stock markets are sliding:

• UK’s FTSE 100 index down 1.6% at 7,372, a fall of 116 points
• Germany’s Dax down 2.4% at 14,213
• France’s CAC down 3% at 6,545
• Italy’s FTSE MiB down 2.8% at 2,5044

European defence stocks including Germany’s arms manufacturer Rheinmetall (up 32%) and the UK’s BAE (up nearly 14%) are surging on news that Germany will ramp up its defence spending to more than 2% of GDP.

The Russian rouble is trading about 20% lower at 99.5 per dollar in Moscow, after crashing 28% to 106.44 earlier on the latest sanctions against Russia. In Asian trading it tumbled even further, to a new record low of 199.50 per dollar.

Crude oil prices have jumped more than 4% above the $100 threshold, to $102.16 a barrel for Brent, the global benchmark, and $96.12 for US light crude.

Gas prices are also soaring in response to wider economic sanctions against Russia. The Dutch benchmark rose 24% to €115 per megawatt hour while the UK March price climbed 22% to 275.5p per therm.

Investors are worried that Russia could turn off its gas supplies to Europe, although Gazprom said it was shipping gas to Europe via Ukraine in line with customers’ requests. A spokesperson for Germany’s largest power producer RWE, which receives gas from Gazprom, also confirmed to Reuters that gas was flowing normally from Russia.

Other commodities continue to charge higher. Aluminium hit a new all-time high of $3,525 a tonne on the London Metal Exchange. Chicago wheat futures posted their biggest one-day gain in a decade, while corn prices rose 4% and soybeans were 2.6% higher. Russia and Ukraine together account for nearly 30% of global wheat exports and a fifth of the world’s corn supply, according to Reuters.

Spot gold has gained 0.7% to $1,901 an ounce as investors pile into safe-having investments, including the dollar.

HSBC has started winding down relations with a number of Russian banks including the second-largest, VTB, as per the latest sanctions imposed by western nations.

In a memo to staff seen by Reuters, HSBC, one of the world’s biggest banks, tells staff how they should apply the new global sanctions on Russia.

Headed “action required” and dated 27 February, it says that the UK Office of Financial Sanctions has authorised the “wind down of certain transactions involving VTB Bank and certain UK subsidiaries”.

Last week, HSBC’s chief financial officer said it had little exposure to Russia –- only around 200 employees and annual revenues of $15, a frantion of its global total of $50bn. But the firm is the world’s leading trade finance bank and Europe’s second-largest lender and so remains a vital cog in the global banking machine.

As sanctions against Russia widen, Norway’s $1.3 trillion sovereign wealth fund — the world’s largest –– announced on Sunday that it would sell its Russian assets.

The Norwegian government said the fund’s Russian assets, consisting of shares in 47 companies as well as government bonds, were worth 25bn Norwegian crowns at the end of 2021, down from 30bn a year earlier.

The fund’s most valuable stakes at the end of 2020 were in Sberbank, where the fund was the fourth-biggest shareholder; followed by the oil and gas producers Gazprom and Lukoil.

Markets.com analyst Neil Wilson said:

Markets are digesting a raft of fresh sanctions that landed over the weekend: Swift ban, Russian central bank assets frozen, flight bans and all sorts. We have also seen an incredible turnaround in German post-war military restraint as it announced plans to increase the defence budget by €100bn this year.

Hensoldt, a German aerospace and defence supplier, jumped 87%, whilst Rheinmetall rallied almost 50%. Other defence stocks rose handsomely: BAE Systems rallied 13% and Leonardo in Italy climbed 15%. Look for [US companies] Lockheed Martin and Raytheon later on.

Travel bans and air space restrictions left travel stocks down: Tui –5%, [British Airways owner] IAG –3% in early trade.

European banks were broadly lower as investors de-risked from institutions with direct exposure to the Russian economy; Deutsche Bank and Commerzbank both -7%, SocGen and BNP Paribas -8-9%. Sberbank was warning on outflows, ECB says its European branches face collapse. Restriction on Russia + possible retaliation = slower growth for Europe.

London-listed Russian companies are also sharply lower. The Anglo-Russian miner Polymetal and the Russian steelmaker Evraz are once again the two biggest fallers on the FTSE 100, down 44.5% and nearly 20% respectively.

European defence stocks have jumped after the German chancellor Olaf Scholz announced a dramatic increase in military spending, following Russia’s invasion of Ukraine.

Military spending will rise to more than 2% of GDP, in a dramatic shift in German policy (it is estimated to have been 1.5% last year). Germany has long resisted pressure from the US to increase its defence spending in light of its role in 20th century history (the two world wars), and amid strong pacifism among its population.

Shares in Germany’s arms manufacturer Rheinmetall jumped as much as 48%, Italy’s Leonardo rose 17%, France’s Thales 11% and the UK’s BAE gained more than 13%, making it the top riser on the FTSE 100 index of bluechip companies.

Analysts at ING said Russians are very sensitive to the dollar-rouble exchange rate and “clearly the current rouble decline is hitting home”. Turning to the Russian central bank’s emergency measures:

This looks like a package of measures to defend the rouble including new mandatory sales of 80% of FX revenues for Russian companies. This latter measure looks to prevent the kind of FX hoarding seen during the Crimea crisis of 2014, when Russian energy companies were alleged to have held onto FX earnings and contributed to heavy RUB losses during that period. Additionally, the CBR has temporarily suspended the sale of Russian assets by non-residents. This comes as companies like BP and the Norwegian sovereign wealth fund announce plans to divest Russian assets.

With Western nations moving to extreme sanctions very quickly – e.g. measures to sanction the CBR are now starting to draw parallels with Iran – investors will be nervous that Western leaders bite the bullet and consider whether exposure to Russian oil and gas supplies comes into focus, too. What is clear is that commodity prices, (gas, oil, certain precious/industrial metals and softs such as wheat) will continue to rise and this supply shock should be a negative for activity and equities.

Suffice to say that the dollar should continue to be the preferred safe haven in these unprecedented times.

Mike Bird (@Birdyword)

A wrap of today’s events

Dollar opens +40% against the rouble

Oil and wheat +5%

Other markets largely shrugging it off

Russia hikes rates from 9.5% to 20%

Orders companies with FX revenue to sell 80%

And it doesn’t seem to be stemming the collapsehttps://t.co/rz71Haww8F

February 28, 2022

The European bourses have opened with declines of between 1% and 2%.

• UK’s FTSE 100 down 1% at 7,412, a loss of 77 points
• Germany’s Dax down nearly 2% at 14,277
• France’s CAC down 2% at 6,616
• Italy’s FTSE MiB down 2% at 25,240

Talks between officials from Russia and Ukraine are expected to begin at 12pm local time (9am GMT) near the border. The Ukrainian president, Volodymyr Zelenskiy, was not hugely optimistic yesterday but said: “Let them try so that later not a single citizen of Ukraine has any doubt that I, as president, tried to stop the war.”

Defence ministers from the European Union will meet virtually later today to coordinate their assistance (in the form of arms deliveries) to Ukraine, after the bloc decided for the first time to jointly fund weapons and send them to Kyiv, according to the EU foreign policy chief Josep Borrell.

Josep Borrell Fontelles (@JosepBorrellF)

I am convening today the EU defence ministers, to discuss the latest situation on the ground in #Ukraine in view of Russia’s unprovoked assault.

We will discuss further urgent needs & coordinate our assistance, with help of the clearing house managed by the EU Military Staff.

February 28, 2022

You can catch up on the latest developments on our Ukraine crisis live blog:

Neil Shearing, group chief economist at Capital Economics, is predicting a decline in Russian GDP of about 5% this year. He said about the exclusion of some Russian banks from the Swift payments system:

The list of institutions affected has yet to be released, but when it is it’s worth watching whether Gazprombank is included (since it handles a large share of Russia’s energy exports this could have implications for energy flows). However, so far at least the West has stopped short of a ban on energy imports from Russia, which would be the most powerful sanctions they could implement.

He has also looked at the impact of sanctions on the Central Bank of Russia (CBR).

This is perhaps a more significant move since it will substantially reduce the ability of the CBR to liquidate its foreign assets to support the ruble and help Russian firms service FX-denominated liabilities. Around 40% of Russia’s international reserves are held in the financial systems of the countries that have signed up to these sanctions.

Key areas to watch going forward are whether the US adds the CBR to its “Specially Designated Nationals” list, which would ban US entities from dealing with the central bank and therefore acting on its behalf, and whether the US introduces ‘secondary sanctions’ that would affect any foreign entity dealing with the CBR. Another key area to watch is whether the CBR sanctions contain a carve out for sovereign debt repayments (we expect that they will).

The sanctions have caused turmoil in Russia’s financial markets, with the rouble opening down 30% against the dollar in offshore trading and falling by much more (~70%) on local retail currency exchanges. These are the conditions in which runs on local banks begin.

The CBR 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 ~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.

The west’s sanctions on Russia also include curbs on the country’s currency reserves.

Analysts at Rabobank said the sanctions on currency reserves removed what little support the rouble had.

Even the gold is not liquid if nobody can use FX in exchange for it. There will be a complete collapse in the rouble today.

Ozkardeskaya has also looked at the west’s decision to block some Russian banks from the international payment system Swift.

SWIFT is the messaging system of international transactions and being left outside SWIFT complicates the oversees transactions terribly. It doesn’t block them, but it makes them chaotic and unreliable. It’s like going to a restaurant and not being able to order the food you want.

The sanctions increase the risk of insolvency of big Russian banks and the risk of a bank run in Russia.

More importantly, the Russian central bank is also concerned with Western sanctions which will greatly weaken its ability to manage the war, the crisis, and the financial stability.

Russian markets will again be under a huge selling pressure, and dollarization will be the next chapter in Russia. The Ruble has already been smashed by near 30% this morning to a record low, and there are hints that this could extend to 175-200 range. This means that this needless and compulsive Ukrainian war will become hard for Russia to finance.

According to the latest news, Russians are surprised and frustrated by how strong the Ukrainians resist to protect their home. The two countries will talk today at the Belarus border, but the expectations are pessimistic.

Ipek Ozkardeskaya, senior analyst at the bank Swissquote, has looked at the latest jump in oil prices.

The week kicks off with soaring energy prices and a decent selling pressure on European and American index futures as the Russian invasion in Ukraine and the bigger sanctions imposed on Russia take a severe toll on market sentiment.

The barrel of US crude jumped more than 5% to $100 this morning, whereas the European natural gas futures closed last Friday 50% higher.

Could OPEC help? Yes, but it will probably choose not to. About two years ago, OPEC countries had refused to restrict production as a response to the pandemic, sending the price of a barrel all the way down to minus $40. There is no guarantee that they don’t do the opposite move this week and announce they won’t raise production in the face of the Ukrainian crisis and send the energy prices soaring. Therefore, the risks to the energy markets remain tilted to the upside.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The Russian rouble has crashed more than 40% to a new record low against the dollar, oil prices have jumped as much as $7 a barrel and gold prices have gained 1%, as financial markets opened for trading for the first time since western nations announced wider economic sanctions on Russia for its invasion of Ukraine.

The sanctions include blocking some Russian banks from the Swift international payments system, leading to expectations among investors of a run on the Russian currency as people scramble to swap their roubles for dollars and other denominations.

The Russian central bank was quick to respond and hiked its key interest rate to 20% from 9.5% this morning to stem the slide in the rouble, which will lead to higher inflation. Russia has also ordered companies to sell 80% of their foreign currency revenues, the central bank and the finance ministry said.

This comes after a number of measures announced by the Bank of Russia on Sunday to counter the economic impact of western sanctions. It said it would resume buying gold on the domestic market, launch a repurchase auction with no limits and ease restrictions on banks’ open foreign currency positions. It also increased the range of securities that can be used as collateral to get loans and banned brokers from selling Russian securities to foreigners.

The rouble dropped as low as 119 per dollar in Asian trading, and later traded 28.8% lower at 118, compared with its closing price of 83.64 on Friday.

Russian markets will open at 10am local time, three hours later than usual. European stock markets are set to fall at the opening bell after chunky gains on Friday.

Brent crude has moved back above $100 a barrel, after falling below that threshold on Friday (it touched close to $106 a barrel on Thursday when Russia began its invasion of Ukraine). This morning the global benchmark is trading at seven-year highs again, up $5 at $103.01 a barrel, a 5.2% rise, while US light crude is $5.46 ahead at $97.08 a barrrel, a 6% gain.

Gold has benefited as a safe-haven investment, with spot gold rising by 1% to $1,905 an ounce.

In a sign that the war in Ukraine isn’t going as planned for Russia, Vladimir Putin on Sunday ordered his military to put Russia’s nuclear deterrence forces on high alert, a rather scary development. The US responded that this was a “totally unacceptable” escalation.

But there was also hope for talks: the Ukrainian president, Volodymyr Zelenskiy, announced that a delegation would meet Russian officials without preconditions on his country’s border with Belarus, but it was far from clear Putin was ready to entertain talks that did not involve compliance with his demands that Ukraine accept partition and disarm.

Things have moved on fast since last Monday when Putin announced he was formally recognising separatist regions in eastern Ukraine and ordered troops into the region. This was followed by Russia’s full-scale invasion of Ukraine in the early hours of Thursday, and a Russian assault on the capital, Kyiv, on Friday and Saturday.

The fierce fighting, also in Ukraine’s second-biggest city, Kharkiv, prompted the US, Britain, the EU and Canada to block Russia’s access to the Swift international banking payment system on Saturday, after mounting pressure for greater sanctions.

Berenberg analyst Holger Schmieding said:

The exclusion of major Russian banks accounting for 70% of the Russian banking market from the SWIFT system to make payments and the possibly even more far-reaching attempt to limit the use of Russia’s foreign exchange reserves of some $630bn can cause problems for financial and non-financial companies outside Russia. The precise impact is difficult to predict in advance. But we would expect central banks, regulators and finance ministers to see to it that the measures will not cause a major financial accident in the advanced world beyond temporary frictions.

The British oil giant BP bowed to pressure to exit its stake in the Russian state-owned oil company Rosneft last night. The firm announced that it was offloading its 19.75% voting stake in Rosneft, saying Russia’s invasion of Ukraine represented a “fundamental change” in relations with Moscow. The value of the stake was estimated at $14bn (£10.4bn) at the end of last year. It is unclear who BP would sell it to.

The oil firm said its chief executive, Bernard Looney, was resigning from the Rosneft board with “immediate effect”. Former BP chief executive Bob Dudley also stood down from the Rosneft board, which is chaired by the former German chancellor, Gerhard Schröder, and run by Igor Sechin, a close ally of president Vladimir Putin.

Russian airlines are facing an almost complete blockade from flying west over Europe after they were barred from the airspace of nearly 30 countries. On Sunday evening the European Commission president, Ursula von der Leyen, said the whole bloc would close its airspace to Russian aircraft.

And Britain has compiled a “hit list” of Russian oligarchs who will face sanctions over the coming weeks, according to the foreign secretary, Liz Truss. She said there were more than 100 billionaires in Russia and that some of them would face “a rolling programme of sanctions” as officials compiled the evidence to justify their assets being frozen in the UK.

The Agenda

• 1.30pm GMT: US trade for January
• 3.50pm GMT: Speech by European Central Bank president Christine Lagarde