U.S. ban on Russian oil spooks jumpy European stocks

FILE PHOTO: Euro banknote is seen through broken glass in this illustration
FILE PHOTO: Euro banknote is seen through broken glass in this illustration taken June 25, 2021. REUTERS/Dado Ruvic/Illustration

March 8, 2022

By Sruthi Shankar, Bansari Mayur Kamdar and Susan Mathew

(Reuters) -European shares slipped on Tuesday, as the United States banned Russian oil imports, raising volatility and fears of global stagflation, and offsetting a recovery in financial stocks.

The region-wide STOXX 600 index ended a choppy session down 0.5% with technology, healthcare and the materials sector weighing.

London’s FTSE and the German DAX were flat, while the bank-heavy indices of Spain and Italy outperformed, rising 1.8% and 0.8%, respectively.

President Joe Biden announced a U.S. ban on Russian oil and other energy imports, ramping up a campaign against Moscow in retaliation for its invasion of Ukraine, while Britain said it would phase out imports of Russian oil and oil products by the end of 2022.

The European Union has so far refrained from a ban on imports given its dependence on Russian gas and oil and the possible inflation repurcussions.

While markets had priced in the bans to an extent, the crisis is fuelling worries about slower economic growth coupled with higher commodity prices and inflation, Julien Lafargue, chief market strategist at Barclays Private Bank, said.

Fears of a severe supply crunch sent crude prices soaring past $132 per barrel, boosting London-listed oil majors BP and Shell up 5.1% and 3.0% respectively. [O/R]

Germany’s DAX and Italy’s MIB were confirmed as being in a bear market, or a decline of 20% or more from the most recent closing highs, on the prospect of a Russian oil import ban.

The STOXX 600 is down almost 15% so far this year, slipping from January’s record highs as the Ukraine crisis has escalated.

“If there is a further escalation in terms of sanctions and you have an actual stopping in physical supply of gas to Europe, you can even be faced with rolling blackouts in the industrial sector,” said Davide Oneglia, senior economist at TS Lombard.

Euro zone banks closed 2.5% higher after hitting a one-year low in the previous session.

Most euro zone sovereign bond yields soared and a key gauge of market inflation expectations jumped to its highest level since late 2013 amid unease over rising price pressures two days before a European Central Bank meeting.

Telecom Italia gained 5.9% after an Italian newspaper reported that U.S. fund KKR was still interested in a takeover, albeit at a lower price.

British insurer and asset manager M&G jumped 15.0% after announcing a 500 million pound ($654.3 million) share buyback programme.

(Reporting by Sruthi Shankar, Susan Mathew and Bansari Mayur Kamdar in Bengaluru; editing by Uttaresh.V, Anil D’Silva and Alexander Smith)