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FTSE closes higher as EU sanctions on Russian oil come into force

FTSEMarchers wave signs and repeat chants as they circle the Parkman Bandstand during a rally for peace in the Ukraine  in Boston, Massachusetts on March 6, 2022. - Marchers chanted stop the war, ban Russian oil, Ukraine is not Russia, and close the sky, as well as many other chants as they marched to Boston Common. (Photo by Joseph Prezioso / AFP) (Photo by JOSEPH PREZIOSO/AFP via Getty Images)
The FTSE was up on Monday as oil prices rose after the European Union and the G7 agreed on a boycott of most Russian oil and a price cap of $60 per barrel on Russian exports. Photo by Joseph Prezioso/AFP via Getty

European stock markets were mixed on Monday after the G7 and European Union price cap on Russian seaborne oil came into force.

In London, the FTSE 100 (^FTSE) closed 0.3% higher, outperforming against its continental peers as weakness in consumer goods and pharmaceutical stocks was offset by strength among miners.

The CAC (^FCHI) tumbled 0.5% in Paris, and the DAX (^GDAXI) was also 0.4% lower in Frankfurt.

Oil prices (BZ=F) fluctuated throughout the session after the EU and the G7 agreed on a boycott of most Russian oil and a price cap of $60 per barrel on Russian exports.

The West wants to limit Moscow's ability to finance its war in Ukraine, though Russia has said it will not abide by the measure even if it has to cut production.

The new price cap was agreed after Poland dropped its opposition to the deal.

“There are a lot of moving parts in the oil market at the moment with uncertainty around the outlook for Chinese demand as well as global demand as the extent of the economic slowdown is yet to be seen,” Victoria Scholar, head of investment at Interactive Investor, said.

“Meanwhile the cartel is waiting to see whether the new Russian cap goes anyway to impacting market prices.

Read more: UK in recession until end of 2023, CBI warns

“As a result, OPEC+ has made the call to hold steady for now, despite the recent downtrend. Over the last six-months Brent crude has shed nearly 25%. However, given the spike in the first quarter following Russia’s invasion of Ukraine, it is still up by nearly 14% so far this year.”

Meanwhile, the Confederation of British Industry (CBI) warned that Britain will fall into a year-long recession thanks to stagflation ⁠— low growth and weak business investment.

It predicted a contraction in the economy throughout 2023, followed by a growth of 1.6% in 2024. The CBI added that business investment will still be 9% below its pre-COVID level two years from now.

By the end of its forecast, UK GDP will remain 8% below its pre-COVID trend from 2010 to 2019, and 27% below its pre-financial crisis trend.

Watch: What is a recession and how do we spot one?

CBI director general Tony Danker said the UK must "start taking action" on investment if it is going to avoid a recession that is "longer and deeper than it needs to be".

He told BBC Radio 4's Today programme: "If we're going to avoid this recession being longer and deeper than it needs to be, then we need to start taking action the prime minister himself recommended earlier in the year.

"We have to start to take these seriously... or we're not going to change that pattern of low business investment."

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Across the pond, the S&P 500 (^GSPC) dipped 1.3% by the time of the European close, and the tech-heavy Nasdaq (^IXIC) fell 1.4%. The Dow Jones (^DJI) edged 0.9% lower.

Investors were focused whether America’s central bank will slow its interest rate rises.

Fawad Razaqzada, market analyst at City Index and FOREX.com, said: "The key focus on investors minds is what kind of a message will the Fed deliver to the market at its highly anticipated rate decision next week.

"The markets have concluded that the pace of tightening will slow down to 50 basis points. The Fed is then likely to continue hiking at a slower pace a few more times before pausing to give time for the higher rates to work their way through the economy to create a soft landing and in order to cool inflation."

On Friday, the US payrolls report came in as a solid number, with 263,000 jobs added in November, with an upward adjustment to October to 284,000.

However it was the wages numbers that provided a lot of the shock value, sending yields and the US dollar sharply higher initially.

Wage growth jumped sharply to 5.1% in November, and October was revised higher to 4.9% from 4.7%.

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Asian shares pushed higher overnight with the Hang Seng (^HSI) surging 4.6% on the day in Hong Kong, while the Nikkei (^N225) climbed almost 0.2% in Tokyo and the Shanghai Composite (000001.SS) gained 1.8%.

It came as Chinese authorities lifted some of their restrictions in the country, although the zero-COVID strategy is still in place.

China has recently suffered several days of protests across cities including Shanghai and Beijing. Some even demanded that Chinese president Xi Jinping step down in a show of public dissent.

The easing of restrictions has boosted hopes for fewer disruptions to manufacturing and trade, while China's yuan was among the best performers in the currency markets, managing to break below the seven per dollar level for the first time in almost three months.

Watch: How does inflation affect interest rates?