The London stock market has suffered its biggest weekly losses since the start of the global pandemic in March 2020, as investors took fright at the escalation of the conflict in Ukraine.
Shares plunged in the City following news of a fire and Russian capture of Ukraine’s Zaporizhzhia nuclear power station, with the one-day drop of more than 250 points in the FTSE 100 index taking the weekly loss to 6.7%.
European bourses also recorded big falls amid concerns that the impact of the fighting in Ukraine would spread westwards across the continent. David Malpass, president of the World Bank, told the BBC the war was a “catastrophe” for the global economy.
Currency and commodity markets also ended the week amid fresh signs of turbulence, with a flight to the safe haven of the US dollar and the highest crude oil prices in a decade.
Meanwhile, wholesale gas prices reached record levels in both Britain and the EU. The UK National Balancing Point (NBP) benchmark soared above 500p a therm at one point, smashing through the previous all-time high set in December, amid a prolonged surge that caused the collapse of a series of household gas suppliers.
The FTSE 100 index in London finished 251 points lower on Friday at 6,998, a 3.5% drop. The German and French stock markets fell more than 4%, taking the Dax in Frankfurt to its lowest levels since late 2020, while the Italian index tumbled 6.2% to its lowest level in more than a year. Europe’s Euro Stoxx 600 index closed at its lowest level in almost a year.
Nervous investors were taking few chances ahead of what they expect to be another tough week when markets reopen on Monday.
Liam Peach, emerging markets analyst at Capital Economics, said: “Russia has fallen into chaos and we’ll get a clearer sense next week of the impact that sanctions are having on the economy. A dollar bond repayment by Gazprom on Monday will be a litmus test of the government’s (and government-linked companies’) willingness to pay external debt, while inflation figures for the week just gone by (due on Wednesday) are likely to show that the collapse in the ruble started to push inflation higher.”
Michael Hewson, chief market analyst at CMC Markets UK, said: “The FTSE 100 has had a shocker of a week, posting its largest decline since March 2020, and below the 7,000 level to its lowest point since August last year. In terms of weekly performance, the best performers have been in defence and commodities, with weekly gains for BAE Systems, and the likes of Glencore, Rio Tinto and Antofagasta.”
Mining and energy stocks have benefited from the boom in commodity prices which saw the price of Brent crude hitting $120 a barrel at one stage. After a jump of $25 a barrel in the past month, the cost of crude ended the week at $115 a barrel. Wheat prices rose to a 14-year high, while corn prices reached their highest level in eight years.
Stephen Brennock of oil broker PVM said: “Russia’s invasion of Ukraine means that fears over supply will remain front and centre.” He said there is a “new sense of urgency” for the west to try and strike a nuclear deal with Iran.
Russia’s military invasion of Ukraine more than a week ago has raised recession risks for the US and European economies – and far more so for Russia, which has been isolated economically by widening sanctions, economists said.
US stocks on Wall Street also fell as concerns over the escalating conflict in Ukraine overshadowed the latest non-farm payrolls data that showed a sharp pick-up in jobs growth last month, and a drop in the unemployment rate to 3.8%.
As stock markets slid, investors piled into investments regarded as safer – gold, currencies like the dollar and yen, and government bonds. British 10-year government bonds recorded their biggest weekly rise in more than a decade. As gilts were in demand, this pushed their yields, or returns to investors, down the most since November 2011. Yields go down when bond prices go up.
On the currency markets, sterling lost 1% against the dollar to $1.3210. War in Ukraine has boosted demand for safe-haven investments such as gold. Spot gold rose 1.5% to $1,965 an ounce.
The Moscow stock exchange stayed closed all week, while the rouble fell to record lows amid wider sanctions on Russia. The rouble hit a record low of 118.35 per dollar in Moscow on Thursday, and ended the week at 105 per dollar.
Caleb Thibodeau, of Validus Risk Management, said: “Evolving into arguably the most serious security threat to continental Europe since the Second World War, the invasion of Ukraine by Russia couldn’t have come at a more economically precarious time for the EU.”