Yahoo Finance FTSE falls as UK faces biggest energy shock in 50 years from Ukraine war
European markets were mixed as the oil price rally cooled after parts of Shanghai entered lockdown and ahead of the latest round of peace talks between Ukraine and Russia.
The FTSE 100 (^FTSE) lost gains, trading flat after Bank of England governor Andrew Bailey warned that the "historic" UK energy shock to real incomes will be bigger than in any year in the 1970s due to the war.
Sterling (GBPUSD=X) lost ground against the safe haven dollar following Bailey's remarks. It fell to a 10-day low, crashing 0.8% to $1.3083 and was also 0.7% lower against the euro (GBPEUR=X).
Elsewhere in Europe, France’s CAC (^FCHI) was 0.9% higher and the DAX (^GDAXI) rose 1.1% in Germany.
"The FTSE 100 is preferring to focus on renewed peace talks between Russia and Ukraine, amid hopes there can at least be a move towards an end in the fighting," said Russ Mould, AJ Bell investment director.
"A return to the status quo which existed before the invasion seems impossible though and the implications of the conflict are almost certain to be lasting whenever it comes to an end."
Read more: Bank of England's Bailey: 'Historic' energy shock larger than any year in 1970s
It comes as Ukraine president Volodymyr Zelensky said he's willing to discuss "neutrality" in order to secure a peace deal with the Kremlin as the war enters a second month.
An adviser to the president said it will not "sacrifice" any territory. Ukrainian forces seized back full control of the town of commuter Irpin, a few miles from capital Kyiv, mayor Alexander Markushin said.
Talks were due to kick off on Monday, but Russia has said they may start on Tuesday in Turkey.
Crude prices edged lower on Monday after China, the world's biggest oil importer, announced a phased lockdown for key financial and manufacturing city Shanghai.
Brent crude (BZ=F) dipped 6.6% to $112.68 (£86.09) a barrel. US light crude (CL=F) was 7% lower to $105.96 in electronic trading on the New York Mercantile Exchange at the time of writing.
Neil Wilson, chief market analyst at Markets.com, said oil markets and other commodities will "continue to remain sensitive headlines" amid the Ukraine war.
"Peace talks have yielded little and increasing concerns about tightness in the physical market were evident last week with steep backwardation emerging again in the futures curve."
Fertiliser prices jumped to new record highs as the war puts a large chunk of the world's fertiliser supply at risk. A gauge of prices for the nitrogen fertiliser ammonia surged 43% to $1,625 per metric tonne at the end of last week, a record for the 29-year-old index.
The soaring cost of natural gas – the main input for most nitrogen fertiliser – is forcing some producers in Europe to cut output.
Across the pond, US benchmarks opened mixed as traders grapple with the twin issue of inflation and the speed of the Federal Reserve’s interest rates hikes.
Wall Street’s S&P 500 (^GSPC) fell 7.42 points, or 0.2%, to 4535.64, while the Dow Jones (^DJI) dropped 0.4%.
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The tech-heavy Nasdaq (^IXIC) gained 0.6% as shares in Tesla (TSLA) surged 5% after the electric car giant said it will seek shareholder approval for another stock split. Amazon (AMZN) rallied, making it the first US tech giant to erase losses for the year as shares surged over 2% to their highest since 4 January.
The yield on the benchmark 10-year note (^TNX), which moves inversely to its price, surged 2.5%, above a technical threshold that has served as a ceiling since the late 1980s. This is a gauge of future interest rates and underpins global borrowing costs.
Meanwhile, the yield on the five-year note rose above the 30-year as a key part of the Treasury bond curve inverted for the first time since 2006. The move suggests that investors are worried about the risk of an economic downturn as monetary policy tightens.
Richard Hunter, head of markets at Interactive Investor, said: "In the US, inflation numbers and the monthly non-farm payroll data are likely to underline the Federal Reserve’s current focus on the former, with the latter now implying an economy which is nearing full employment.
"Indeed, having digested the initial interest rate rise, some are now calling for a more aggressive approach from the Fed in tackling soaring inflation. The possibility is now growing for 0.5% hikes at both the May and June meetings.
"From the Fed’s perspective, this remains a difficult balancing act. The economy seems to be on a recovery trajectory, but the Treasury yield curve in the US is getting close to inversion. This implies concerns that there may be an overshoot on hiking rates, which could result in an unwanted Fed-induced recession."
US president Joe Biden released a budget blueprint that calls for a wealth tax aimed at billionaires in America, increased security spending, and plans to reduce the nations budget deficit by $1tn over the next decade. Biden proposed a total of $5.8tn in federal spending in fiscal 2023.
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Overseas markets were mixed overnight as the lockdown in Shanghai, a key financial and manufacturing hub damped the mood in Asia. The MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped 1.1%.
The Shanghai Composite (000001.SS) fell 0.1%, the Nikkei (^N225) was over 0.7% lower in Japan, while the Hang Seng (^HSI) edged 1.3% higher in Hong Kong.
