European stocks rise as Shenzhen lockdown raises global supply fears

Residents queue to undergo nucleic acid tests for Covid-19 in Shenzhen, China on 14 March 2022. European stocks rose on Monday as oil prices fell and China battles its biggest COVID outbreak since the onset of the pandemic. Photo by STR/AFP via Getty

European stocks started the week in the green as oil prices retreated and China battles its biggest COVID outbreak since the onset of the pandemic, raising fears of a disruption to global supplies.

The FTSE 100 (^FTSE) gained 0.2% as index provider FTSE Russel announced that a slew of Russian companies would be deleted from its lists.

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’s 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% — the pre-pandemic level — for the second meeting in succession, and the third rate rise in a row. The BoE's projected terminal rate is 1.75%.

Elsewhere in Europe, France’s CAC (^FCHI) was 0.7% higher after the opening bell and the DAX (^GDAXI) rose 2.1% in Germany.

Read more: Evraz shares halted as Abramovich sanctions spark sell-off

In commodity markets, crude oil prices posted their biggest weekly drop since November last week, despite hitting their highest levels since 2008 as traders assessed the damage to global supply from the war.

The UK and US’s announcement of a ban on Russian oil and oil products also helped to push up prices. However, they pulled back sharply throughout the week as some producing countries signalled they may boost supply.

Uncertainty over the US-Iran nuclear deal also added to the market's volatility, raising fears over supply as talks to revive the 2015 pact faced the threat of collapse after a last–minute Russian demand forced the countries to pause talks.

Brent crude (BZ=F) was down 2.9% to $109.39 (£83.93) a barrel in early trade on Monday in London. US light crude (CL=F) fell 3.3% to $105.74 in electronic trading on the New York Mercantile Exchange. Brent crude fell 2.9% to $109.36 a barrel after soaring to a 14-year high last week. Chart: Yahoo Finance UK

Wheat prices also saw a big weekly decline — the biggest in over a decade, despite also posting a new record high.

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Experts says there has been a gradual shift in thinking, and that the transitory narrative over prices is “dead in the water and has been for some time”.

“In a week that has seen prices across the commodity complex post multiyear, as well as new record highs, concerns over rising prices, and whether they are transitory or not has been increasing, against a backdrop that central banks are way behind the curve,” said Michael Hewson, chief market analyst at CMC Market.

Gold (GC=F), an asset that investors perceive as a safe haven, fell 0.5% on Monday amid hopes of progress in Ukraine talks.

Read more: UK set to ban Russian oil imports

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.

Across the pond, US benchmarks closed lower on Friday ahead of an anticipated 25bps Federal Reserve (Fed) interest rate hike.

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 55.21 points, or 1.3%, to 4204.31.The tech-heavy Nasdaq (^IXIC) was down 2.2%, while the Dow Jones (^DJI) posted its fifth consecutive weekly decline, slipping 0.7%. The Russel 2000 index (^RUT) of small firms fell 1.6%.

Read more: Ukraine war puts new urgency around better UK-EU trade relations

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 said.

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.

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 cases reached 3,400.

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.

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.

Watch:How does inflation affect interest rates?