Confidence evaporates on financial markets amid fresh diplomatic skirmishes over Ukraine

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown shares her thoughts on how the current situation in Ukraine and Russia is impacting global financial markets.

Such is the sensitivity on the financial markets right now, temporary confidence can evaporate rapidly and that’s what we’ve seen today after what appears to be another deterioration in relations between Russia and Western powers. The FTSE 100 erased gains in early trading and the DAX in Frankfurt and CAC 40 in Paris fell into negative territory.

Hopes had been raised that a summit could quell tensions but fresh diplomatic skirmishes have broken out, with Kyiv dismissing accusations that Ukranian military units tried to enter Russian territory, dismissing it as attempts by Moscow to spread fake news. A fresh wave of volatility has hit Russia focused miners listed in London with EVRAZ and Polymetal International the top fallers on the FTSE 100. Worries are mounting that wide ranging sanctions would pummel the businesses and these concerns aren’t likely to ease, with the Kremlin saying there are no concrete plans for a summit yet in place.

As ripples of relief earlier in the day ebbed away, Brent crude jumped almost 1.6% higher, back up above $95 a barrel .With tensions so high, energy markets remain jittery, with traders conscious that an invasion could lead to tough sanctions and further constrain oil supplies, particularly with global demand so high and inventories lower elsewhere. Gas prices once again are on a march upwards, amid worries about availability if Russia’s aggressive stance escalates, with recent storms already disrupting deliveries.

With the oil price elevated, petrol and diesel have hit fresh highs at the pumps causing yet more pain for consumers already caught in the grip of the cost of living crisis. The extra pounds are piling up for hard hit families, with the increase in fuel set to hit lower income households harder as a higher proportion of their outgoings will be spent on travel costs. With budgets being squeezed further the likely knock on effect will be a hit to consumer confidence after any lockdown savings are worn away.

Worries that the Ukraine situation could rapidly escalate have also hit travel stocks today, which earlier had lifted on dual hopes of a Ukraine summit and another easing of Covid restrictions in the UK. Dissent at the heart of the UK government about lifting of isolation rules is adding to the uncertainty, but it is the fresh talk of conflict that seems to have led to a wave of uneasiness rippling through the travel sector amid worries that confidence in the travelling public could take a severe knock if fighting breaks out. After flying higher in early trading, British Airways owner International Consolidated Airlines Group had fallen back by 1.5% by mid-afternoon, with easyJet also tracking lower.

AstraZeneca provided some cheer, with progress made for its breast cancer drug Enhertu with improved survival rates shown in late stage trials. This has helped spark fresh interest in the stock, and it helps that healthcare is also seen as a defensive play in times of volatility.

People will still need specialist drugs, no matter what the economic conditions, so pharmaceutical stocks have been on investors’ radars.

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