It's another volatile session for stocks and for oil which is within striking distance of $120 a barrel. Our head of investment sums up where we are right now.
European markets have opened mixed with basic resources and oil & gas staging sharp gains. The FTSE 100 is holding just below the flatline with London Stock Exchange Group (LSE:LSEG), Glencore (LSE:GLEN), Anglo American (LSE:AAL) and Antofagasta (LSE:ANTO) leading at the top of the index. Meanwhile Russia’s Polymetal International (LSE:POLY) is languishing at the bottom of the basket, down more than 30% and ITV (LSE:ITV) is also down by more than 10% on the back of its full-year earnings.
Brent crude briefly touched $119.30 per barrel this morning, hitting the highest level since March 2012, while WTI is also sharply higher, trading above $115. The US has targeted Russia’s oil refining sector with sanctions, with the possibility that Russia’s oil and gas exports will be next on the list.
With OPEC+ refusing to respond to the sharp spike in oil prices by sticking to its 400,000 barrels per day increase in output in March and with the market unfazed by the IEA’s global crude reserve release, the geopolitical tensions look set to push oil prices higher with Brent crude on track to breach $120 or even $125 as the next major resistance hurdles.
Alongside oil, the broader commodities complex has been staging major gains. Aluminium, coal and palm oil have all hit fresh record highs while wheat hit 14-year highs as Russia’s invasion of Ukraine and the West’s retaliatory sanctions looks set to shrink the availability of supply.
The attack against Ukraine has highlighted the level of energy and broader commodity dependence that the West has on Russia. With further sanctions expected, the commodities complex looks set for an extension of the recent rally. Energy markets were already in bullish mode post pandemic with demand outstripping supply and geopolitical tensions have accelerated the upswing, sparking fears of deepening price instability.”
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The euro has hit the lowest level since July 2016 against sterling while the common currency in the eurozone has hit a 21-month low against the greenback.
The depreciation has been driven by concerns about what Russia’s military aggression and the rally in commodity prices could spell for Europe’s growth trajectory with surging oil prices typically accompanied by recessionary dynamics later down the line. Germany’s imports from Russia overtook its exports last year because of rising demand for crude oil and natural gas, shining a light on its Russian energy dependence.
LONDON STOCK EXCHANGE
Shares in the London Stock Exchange Group (LSE:LSEG) are trading sharply higher after 2021 pre-tax profit more than doubled to £987 million, thanks to its acquisition of Refinitiv last year. The exchange said it is actively engaging with regulators and authorities on all relevant sanctions. The LSE has suspended trading in 27 companies with ties to Russia including Sberbank after its collapse yesterday as well as Gazprom and Lukoil.
Having shed almost a third of its value in just over a year, today’s price action comes as a welcome positive surprise to investors, going against the recent downtrend. Despite a hefty price tag, the acquisition of Refinitv is clearly paying off as the company realigns its focus towards financial data to create a competitive force against Bloomberg.
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Shares in Entain (LSE:ENT) are rallying after the online betting firm saw 2021 core earnings rise 4.6% to £881.7 million, topping analysts’ expectations.
Despite tough comparables versus 2020 during lockdowns, the parent company of Ladbrokes and Coral managed to report higher earnings year-on-year, which outpaced forecasts. However it is yet to resume the dividend, having halted pay outs at the height of the pandemic amid the uncertainty. Entain has the potential to attract further M&A interest this year, having already been approached by DraftKings and MGM over the last year, particularly given the slump in its shares since September.
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