News Column

Markets hit by Russian crisis

July 18, 2014

By Rupert Steiner and Rob Davies, Daily Mail, London

July 18--Fears that fresh political turmoil could sweep the world hit global markets last night after a Malaysian airliner crashed in eastern Ukraine, killing 295 people, amid speculation it had been shot out of the sky.

Stock markets around the world extended earlier losses already prompted by America slapping Moscow with new sanctions, while safe-haven assets such as gold rose.

Wall Street stocks fell along with European shares and airline stocks while US Treasuries spiked.

New York's Dow Jones industrial average fell 56.87 points, or 0.33pc, to 17,081.33 in early trading while the FTSE 100 closed down 46.35 to 6738.32.

The ruble suffered its biggest drop since August 2011 having already lost ground because of the heightened American sanctions. The Japanese yen rose 0.3pc against the dollar, the pound was up 0.18pc to pounds sterling 1.71 while the US dollar was flat.

The aircraft, a Boeing 777 flying from Amsterdam to Kuala Lumpur, fell out of the sky in the Ukrainian Donetsk region a stronghold of pro-Russian forces and there was early speculation the aircraft had been hit by a ground-to-air missile.

Geo-political strains have already been running high in the area with intense friction between Russia and Ukraine, while heightened tension in Gaza between Israel and Hamas escalated further as Israeli forces launched a ground offensive, making markets even more jittery.

'The news of a Malaysian airliner crashing near the Russian border clearly had a major impact on the market in late trading,' said Brenda Kelly, an analyst at IG.

Gold prices jumped more than 1pc in their biggest one-day advance in about a month. The benchmark US 10-year Treasury note rose 13/32 in price, yielding 2.482pc.

British Airways owner IAG fell 3.02pc, down 10.3p to 330.7p, while in early trading American Airlines fell 1.84pc or 0.80 cents to $42.68.

Air France will no longer fly over eastern Ukraine and Lufthansa jets are avoiding the region's air space.

The full impact of the disaster will be felt on the markets overnight as more details emerge. These renewed fears of geopolitical turmoil followed hard on the heels of stock market falls for London-listed firms with exposure to Russia. President Barack Obama took action to squeeze companies including Rosneft, the giant energy firm in which BP holds a near 20pc stake.

The sanctions prevent Rosneft and three other companies from accessing US debt markets, a move that is likely to drive up their cost of accessing finance. If raising funds becomes more expensive for Rosneft, that could affect the dividends it pays to investors including BP, which amounted to nearly pounds sterling 300m last year. Shares in BP fell 9.8p to 496.8p, the lowest closing price for the oil 'supermajor' since the end of April.

'BP will study these recently introduced sanctions carefully and will continue to comply fully with all applicable sanctions,' the company said.

Insiders emphasised that the sanctions did not affect the ability of BP bosses to fly between Russia and the UK, or prevent transactions and joint ventures. But the fall in BP stock was mirrored among companies with exposure to Russia, such as drinks can maker Rexam, which makes nearly 7pc of its revenue there.

Shares in Rexam finished the day down 16p at 520.5p, while gold miner Polymetal lost 3,6pc to 538p.

Roman Abramovich-backed steel company Evraz, which has operations in Ukraine, lost 2.8pc to 99.75p, while Ukraine-focused miner Ferrexpo was down 3.6pc at137.9p.

JP Morgan Russian Securities equity fund lost 4.6pc to close at 454.25p, while the Baring Emerging Europe fund lost 3pc to 670p.


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Source: Daily Mail (London, England)

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