By Peter Nurse
Investing.com - European stock markets sold off sharply Monday, as investors digested the news of Western governments ramping up the sanctions on Russia and President Vladimir Putin placing his country's nuclear deterrent on high alert.
By 3:50 AM ET (0850 GMT), the DAX in Germany traded 2.3% lower, the CAC 40 in France dropped 2.6% while the U.K.’s FTSE 100 fell 1.9%.
The abject start to the week comes after Western nations announced plans over the weekend to further sanction Russia as it continued to strike targets in Ukraine, excluding some Russian banks from the SWIFT financial messaging system, used by most financial institutions around the globe for trillions of dollars worth of transactions. Payment for Russian energy supplies will, however, still be possible.
Additionally, the EU and U.S. announced moves that effectively froze over half of the Russian Central Bank's foreign reserves, limiting its ability to support the ruble, which fell some 30% in early trading on Monday. That prompted the Bank of Russia to hike its key interest rate to 20%, while S&P Global Ratings downgraded Russian bonds to junk status.
In a marked shift, the EU also said it would start sending lethal weapons to Ukraine to help it defend itself, and EU Commission head Ursula von der Leyen also signaled the bloc would accept an application for membership from the country. Russian President Vladimir Putin put Russia's nuclear deterrent on high alert on Sunday in response to the more aggressive stance by the West.
All this marks a rapid escalation in the efforts of the U.S. and its allies to isolate Russia.
The corporate sector has accordingly braced for big losses on its investments in Russia. BP (NYSE:BP), the biggest foreign investor in the country, said it will exit its stake in oil giant Rosneft, taking a hit of up to $25 billion as a result. Its stock fell 6.3% as a result.
This abrupt move puts the spotlight on other Western corporations with operations in Russia, notably banks such as Austria's Raiffeisen Bank International (VIE:RBIV) and Italy's UniCredit (MI:CRDI), which dropped 17% and 9.8%, respectively.
Societe Generale (OTC:SCGLY) stock fell 9.6% as the French bank that owns Russia's Rosbank, while carmaker Renault (PA:RENA), which controls Russian carmaker Avtovaz, fell 9.4%.
Elsewhere, AB Foods (LON:ABF) stock fell 3.2%, hit by the day’s underlying sentiment despite forecasting first-half sales and adjusted operating profit "strongly ahead" of the previous year and ahead of pre-Covid 19 levels, reflecting an improved performance from its Primark fashion business.
There is still some hope of diplomacy, after Ukraine said negotiations with Moscow without preconditions would be held at the Belarusian-Ukrainian border, starting later Monday.
Oil prices soared amid fears the additional sanctions will disrupt oil shipments from Russia, the world's second-largest crude producer and the largest supplier of natural gas to Europe.
By 3:50 AM ET, U.S. crude futures traded 4.1% higher at $95.34 a barrel, while the Brent contract rose 3.9% to $97.81.
Additionally, gold futures rose 0.8% to $1,902.50/oz, while EUR/USD traded 0.8% lower at 1.1175.