European stocks closed in the green at the start of the week as traders assessed sharp falls in oil prices and financial markets rebounded ahead of peace talks between Ukraine and Russia.
The FTSE 100 (^FTSE) gained 0.6% as index provider FTSE Russel announced that a slew of Russian companies would be deleted from its lists. France’s CAC (^FCHI) was 1.9% higher and the DAX (^GDAXI) rose 2.2% in Germany.
Russia-focused mining firms Evraz (EVR.L), Polymetal International (POLY.L), Petropavlovsk (POG.L) and small-cap investment company Raven property (RAV.L) will be deleted from all FTSE indexes this month.
Evraz shares were suspended last week after its largest shareholder Roman Abramovich was sanctioned.
It comes as the Bank of England is expected to hike interest rates by 25 bonus points to 0.75% — for the second meeting in succession, and the third rate rise in a row — despite the threat to growth spurred by the Ukraine war and rising inflation.
This was the pre-pandemic level, and the BoE's projected terminal rate is 1.75%.
"A few days ago, the European Central Bank more or less threw in the towel on their belief that inflation was transitory by upgrading their inflation forecasts and announcing the likely end of their asset purchase program by the end of Q3," said Michael Hewson, chief market analyst at CMC Market.
"This week we can expect the Federal Reserve to embark on their own tightening regime by raising rates by 25bps, followed by the Bank of England who look set to do the same."
Global markets have been rocked by dramatic reversals as Russia's invasion of Ukraine continues to affect the prices of oil, wheat and other commodities produced in the region.
In commodity markets, oil prices retreated at a sharp rate after rising to a 14-year high. Brent crude (BZ=F) was down 6.9% to $104.88 (£80.36) a barrel in afternoon trade on Monday in London. US light crude (CL=F) fell 4.5% to $104.04 in electronic trading on the New York Mercantile Exchange.
Wheat prices also saw the biggest weekly decline in over a decade, despite also posting a new record high.
Gold, an asset that investors perceive as a safe haven, fell on Monday amid hopes of progress in Ukraine talks. Spot gold (GC=F) was down down 1.2%.
Economists have warned that a move away from Russian agricultural and energy products could tip the eurozone economy into recession as around 40% of the bloc's energy supply comes from Russia.
Jennifer McKeown, head of the global economics service at Capital Economics, said that limits on agricultural products like wheat, corn, palladium and gas could put "pressure" on several sectors.
"Existing plans to cut back on energy imports from Russia are going to have a significant effect on the eurozone economy," said McKeown.
If the cut back needs to be escalated due to tighter sanctions it's possible that could tip the bloc into recession, which could lead to "power outages" in Europe, she added.
Read more: UK set to ban Russian oil imports
Across the pond, US benchmarks were mixed on Monday ahead of an anticipated 25bps Federal Reserve (Fed) interest rate hike later this week.
The Fed is expected to raise rates at its meeting this week for the first time since December 2018 as central banks act to stamp out the highest inflation in generations, while trying to avoid triggering a recession by hiking rates too high or too quickly.
Wall Street’s S&P 500 (^GSPC) lost 4.68 points, or 0.1%, to 4119.63. The tech-heavy Nasdaq (^IXIC) fell 1.2%, while the Dow Jones (^DJI), which posted its fifth consecutive weekly decline last week, gained 0.7% at London's close. The Russel 2000 index (^RUT) of small firms fell 1.3%.
Away from events on the ground as Russia advanced its attacks on Ukraine over the weekend, analysts say market attention is also turning to the probability of a Russian default as its economy is hit by sanctions.
“Russia is due to make payments on some of its debt later this week with ratings agency Fitch expecting to see an “imminent” default, which could trigger a chain of other defaults,” Hewson added.
Meanwhile, the Moscow Exchange (IMOEX.ME), Russia’s main stock market, will remain shut until 18 March. Stocks last traded on 25 February, a day after the Ukraine invasion. This marks the longest market closure in the country's history as officials attempt to stave off financial collapse when trading resumes.
China’s foreign ministry spokesperson Zhao Lijian said that reports over the weekend that Russia had asked for military assistance were "disinformation".
Asian stocks were mixed overnight as China battles its biggest COVID wave since March 2020. The country put 17.5 million residents of southern metropolis Shenzhen in lockdown for a week as the country reported over 1,800 cases on Sunday.
The city is a major producer of electronic and automative components, with prolonged lockdown potentially creating a fresh wave of disruption to global supply. Officials have also shut schools for students from kindergarten through middle schools in Shanghai.
Shenzhen in China is the world's 30th largest economy - at about $475bn in 2021 - bigger than Israel ($468bn) and just behind Nigeria ($480bn) or Austria ($481bn).
Omicron still problematic where mRNA (eg Pfizer type) vaccines have been limited https://t.co/IwiOGIEnTW
— Charlie Robertson (@RencapMan) March 14, 2022
The Nikkei (^N225) rose 0.6% in Japan, while the Hang Seng (^HSI) crashed 4.1% in Hong Kong, its biggest fall since 2008, and the Shanghai Composite (000001.SS) declined 1.9%. The MSCI’s broadest index of Asia-Pacific (AAXJ) shares excluding Japan edged 2.3% lower.
"Shenzhen going into lockdown could have negative effects beyond China’s economy. It is known as ‘the world’s factory’ thanks to its concentration of electronics manufacturing," said Russ Mould, investment director at AJ Bell. "Any prolonged disruption to operations could cause yet another global supply chain crunch."