Yahoo Finance European stocks fall as Russia sanctions and hawkish Fed weigh
European stocks sank on Thursday as western allies seek to inflict more financial pain on Russia and investors assess the Federal Reserve’s monetary tightening plans.
The FTSE 100 (^FTSE) fell 0.5% as oil stalwart Shell (SHEL.L) warned the exit from Russia has cost it as much as $5bn (£3.8bn) in the first quarter of this year.
Elsewhere in Europe, France’s CAC (^FCHI) was 0.4% lower and the DAX (^GDAXI) lost 0.3% in Germany.
The pound (GBPEUR=X) rose 0.3% to 83.16p against the euro, its highest level since March 23 as jitters about the upcoming French election add pressure on the common currency. It edged 0.1% higher against the dollar (GBPUSD=X) to $1,307 after touching a three-week low earlier this week.
Analysts have said that the US central bank's minutes from its 15-16 March meeting "helped pour cold water" on investor sentiment.
"European markets started in fairly sober mood – with UK stocks no exception – unsurprising perhaps given some tough rhetoric from the US Federal Reserve on interest rates and the latest round of sanctions imposed by the West on Russia yesterday," said Russ Mould, AJ Bell investment director. "Both the cure, higher interest rates, and the disease, surging prices, are harmful to markets right now."
Read more: Shell to write off $5bn on Russia exit
It comes as Ukrainian president Volodymyr Zelensky urged world economies to reject Russian oil and block its banks from the global financial system to encourage it to withdraw from the war.
The United States and Britain both announced new sanctions, targeting Russian president Vladimir Putin's two daughters and major banks including Sberbank.
The EU unveiled plans for a new round of sanctions earlier this week, including a ban on Russian coal imports worth €4bn ($4,4bn, £3.3bn), which foreign policy chief Josep Borrell said will be agreed soon.
On Thursday, US Treasury secretary Janet Yellen called for Russia to be expelled from the Group of 20 major economies forum (G20) adding that America will boycott some meetings if Russian officials show up.
Watch: Treasury Secretary Yellen on Russian sanctions and the G20
Across the pond, US benchmarks were in the red as jobless claims tumbled to their lowest level since 1968.
Initial unemployment claims fell by 5,000 to 166,000 in the week ending 2 April, a bigger fall than anticipated, according to Labor Department data. Continuing claims for state benefits rose to 1.5 million in the week ended 26 March.
Wall Street’s S&P 500 (^GSPC) retreated 16.31 points, or 0.4%, to 4464.83. The tech-heavy Nasdaq (^IXIC) and Dow Jones (^DJI) drifted 0.6% lower at London's close.
Adding to the losses, government bonds also sold off, with the yield on the benchmark 10-year note rising to 2.606%, the highest level since March 2019. Yields and bond prices move in opposite directions.
Markets edged higher after Fed minutes hinted at a more rapid rollback of the mass monetary stimulus, depleting the £9tn balance sheet faster, while simultaneously hiking rates, in a bid to tame soaring inflation.
Michael Hewson, chief market analyst at CMC Markets, said: "As suspected, the war in Ukraine did temper the Federal Reserve’s decision to hike rates at its meeting in March.
"Last night’s minutes showed that several participants would have been minded to go for a 50bps move, however an abundance of caution prompted them to stay their hand until events became clearer knowing that they had the option to go harder and faster later on."
Read more: How economic sanctions work
Despite fresh sanctions and threats of more to come, the Russian ruble rose as much as 7.3% in its third day of gains, rebounding after plummeting to record lows following the invasion of Ukraine.
Overseas markets were spooked about a more hawkish Fed, with the ongoing war in Ukraine and rising COVID cases in China continuing to guide sentiment. The MSCI’s broadest index of Asia-Pacific (AAXJ) shares excluding Japan fell 1.5%.
Asian equities were in the red overnight, in line with global stocks. The Nikkei (^N225) declined 1.7% in Japan, while the Hang Seng (^HSI) shed 1.1% in Hong Kong and the Shanghai Composite (000001.SS) closed 1.4% lower.
Watch: How does inflation affect interest rates?
