Stock markets rebound on Russia sanctions

Soldiers examine the remains of a missile near Kyiv

Global markets soared on Friday as investor concerns eased about the severity of sanctions imposed on Russia following its invasion of Ukraine.

Coordinated Western sanctions against Russia have targeted its banks but left its energy sector largely untouched.

After sharp falls on Thursday, stock markets in the UK and Europe jumped more than 3%. US exchanges also rose.

Oil prices reversed early gains on Friday and fell by more than 2% but are still trading near seven-year highs.

Brent crude - the international benchmark for oil prices - dropped below $98 a barrel.

The share price gains followed weeks of declines, fuelled in part by concerns about Europe's most severe conflict since World War Two.

While the sanctions against Russia include freezing bank assets and cutting off state-owned enterprises, they stopped short of disconnecting Russia from the Swift international banking system or targeting its oil and gas exports, which some analysts said had helped stock markets start to recover.

"It's not that the market is saying the war is good news. They were worried about the war and selling off, and now it's happened and paradoxically it's not as bad as the worst case scenario, at least not yet," said Jonas Golterman, senior markets economist at Capital Economics.

The UK's FTSE 100 index rose 3.9%- the biggest daily gain since November 2020 when Pfizer announced a vaccine breakthrough - and stock markets in Germany and France closed more than 3.5% higher.

In the US, the Dow Jones Industrial Average closed 2.5% higher, while the S&P 500 rose 2.2% and the Nasdaq climbed 1.6%, extending gains from Thursday.

Markets in Asia also closed higher.

• Why Ukraine crisis could cause global price rises

• What sanctions are being imposed on Russia?

The gains came despite fighting across Ukraine on Friday forced tens of thousands of people from their homes.

The US, UK and EU said Friday they would place sanctions on Russian President Vladimir Putin, but China's foreign ministry also reported that Mr Putin might be willing to hold talks with Ukraine.

"This is a very sentiment driven market right now, so if there is even a whisper that there might be willingness to talk, the market will rally and rally hard," said Ross Mayfield, a US-based investment strategy analyst at Baird investment bank.

"That's not based on fundamentals. That's pure sentiment."

After the earlier global sell-off of shares, investors were also "looking for bargains", said Jane Foley, head of currency strategy at Rabobank.

Ms Foley told the BBC's Today programme there were many firms in emerging markets which export agricultural products and raw materials such as metals, so "perhaps they're going to be doing well in this crisis, because other countries will be looking to buy their commodities from other markets that aren't Russian".

Petrol prices

The UK imports 6% of its crude oil and 5% of its gas from Russia, but there have been concerns that sanctions could constrict supplies and drive up prices worldwide.

The high price of energy and fuel, with demand surging following the easing of Covid restrictions, is one of the main factors currently driving up the cost of living for people in the UK.

Both the RAC and AA motoring groups said average fuel prices hit fresh record highs of 149.67p a litre for petrol, with diesel at 153.05p.

Despite the fall on Friday, the AA predicted that petrol would hit 150p per litre over the weekend. There is a lag between crude oil and petrol price movements.

Rising oil prices are hitting motorists

Both motoring groups said the weak pound combined with crude oil prices would push up costs at the pump.

RAC fuel spokesman Simon Williams said "sadly, more increases are on the way" due to the rise in the price of crude oil and the pound weakening against the dollar, "making wholesale fuel more expensive to buy for retailers in the UK".

Gas prices have seen big fluctuations since Russia's military action began.

UK wholesale gas prices soared nearly 60% on Thursday but on Friday prices were down more than 18%.

Russia attacks Ukraine: More coverage

• LIVE: Latest updates from on the ground

• THE BASICS: Why is Putin invading Ukraine?

• VISUAL GUIDE: Tracking the invasion in maps

• FROM KYIV: Sheltering from rockets in basements

• FROM MOSCOW: Shock and support in Russian capital

Russia is the second largest exporter of crude oil after Saudi Arabia. It is also the world's biggest exporter of natural gas.

Europe gets nearly a third of its oil and around 40% of its gas from Russia, much of it flowing through pipelines across Ukrainian territory.

Concerns remain that sanctions could constrict supplies and drive up prices worldwide.

Despite the inflation risk, analysts said the stock market rally reflects in part investor bets that uncertainty from the conflict will make central banks - in particular, the US Federal Reserve - move more cautiously to raise interest rates. Fear of aggressive action has been a major factor driving prices lower in recent weeks.

"With all of this uncertainty weighing, and part of that, the way high oil prices and high gas prices might weigh on consumer spending in the US, I think they'll be more hesitant," said Mr Mayfield of Baird.

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