Markets stage strong recovery as investors question strength of sanctions

Global markets staged a major recovery on Friday as traders believed the sanctions imposed on Russia were unlikely to significantly impact Western economies.

The FTSE 100 leading share index in London closed up 3.9% on Friday, recovering almost all its losses from Thursday as Russia invaded Ukraine.

It was the biggest single-day rise in shares on the London Stock Exchange’s leading index in 16 months.

Similar rises were seen on France and Germany’s exchanges, while the Russian stock market ended the day up 20% – having fallen 33% on Thursday.

As Russian troops entered Ukraine in the early hours of Thursday morning, investors had feared that the sanctions being discussed by world leaders could cause inflation to rise and disrupt global trade.

But by Friday many of those initial fears had been allayed, with some analysts pointing out that the EU was struggling to form a united front on sanctions, including removing Russia from the Swift transaction system.

As a result, the FTSE 100 closed the day up 282 points at 7489.46 – a 3.9% rise. On Thursday it had closed down 291 points at 7207.01.

It was the biggest single-day rise since November 2020 – the same day Pfizer announced it had created a successful vaccine against Covid-19.

Oil prices also fell back below 100 dollars a barrel, having breached the psychological barrier on Thursday over fears that Russia’s gas companies could be hit with sanctions.

A barrel of oil was worth 96.72 dollars – down 2.4% on the day.

Europe’s reliance on Russian gas meant no sanctions have been imposed on those businesses, with banks and wealthy individuals targeted instead.

In Europe, several leaders are pushing for Russia to be excluded from Swift – including Prime Minister Boris Johnson – however, Germany and Italy are said to be holding out on implementing such a move.

Analysts say that for a ban from the system, which all banks use for transferring money between institutions, a global approach is needed.

There was also incredulity over Italy managing to avoid sanctions being placed on some of its luxury goods businesses from selling products to Russia.

Michael Hewson, chief market analyst at CMC Markets UK, said: “European markets have seen a sizeable rebound today as fault lines over sanctions, particularly amongst some EU members, took some of the bite out of yesterday’s actions by the US and UK.

“The decision to leave out energy from the sanctions list is in some way understandable, given the global economic impact that might have, however other carve-outs like luxury goods and items for the likes of Italy and Belgium come across as harder to stomach, and make a complete mockery of the whole sanctions process.”

It was also suggested that Russia’s attempts to start talks with the Ukrainians in the Belarus capital Minsk could be a sign that any invasion may be short-lived.