European stocks slumped on Monday, led by bank shares, as Western countries imposed tough new sanctions on Russia following its invasion of Ukraine, while soaring oil prices fed into fears of runaway inflation.
The pan-European STOXX 600 index fell 1.3 percent. The German DAX tumbled 2.4 percent, France's CAC 40 dropped 2.8 percent, and the UK’s FTSE 100 slipped 1.2 percent.
Crude oil jumped almost 5 percent while Russia's rouble plunged nearly 30 percent to a record low after Western nations imposed sanctions including blocking big Russian banks from the SWIFT global payments system.
Adding to nerves, President Vladimir Putin put Russia's ’nuclear deterrent on high alert in the face of a barrage of Western reprisals.
European banks most exposed to Russia, including Austria’s Raiffeisen Bank, UniCredit and Societé Generale, plunged between 9.5 percent and 13.4 percent, while the wider euro zone banking index slid 6.7 percent to its lowest in three months.
“Inflation and Russia continue to be the biggest drivers.Obviously with oil prices getting higher, that continues to feed into inflation,” said Louise Dudley, portfolio manger for global equities at Federated Hermes.
“Interest rate expectations have come down as well as growth expectations. At this point, cyclical trade is certainly looking less favourable.”
Euro zone money markets further scaled back expectations for rate hikes from the European Central Bank, with traders now pricing in a total of 30 basis points (bps) by year-end, from roughly 35 bps late last week.
Goldman Sachs forecast European headline inflation to rise sharply to 5 percent in 2022 and said the crisis could shave off as much as 0.4 percent of euro area GDP this year.
Geopolitical tensions and fears of higher interest rates have sapped investor sentiment this year, with the STOXX 600 shedding nearly 10 percent since hitting a record high in early January.
In response to Russia's invasion of Ukraine, German exchange major Deutsche Boerse said a number of securities of Russian issuers such as airline Aeroflot, energy giant Lukoil, lenders Sberbank and VTB were suspended from trading.
London-listed energy major BP slid 6.7 percent after the biggest foreign investor in Russia said it was abandoning its stake in state oil company Rosneft at a cost of up to $25 billion (about R386bn) .
France's Renault, which controls Russian carmaker Avtovaz, skid 8.2 percent.
Defence company Rheinmetall soared 29.1 percent after German Chancellor Olaf Scholz said the country would sharply increase its spending on defence to more than 2 percent of its economic output.
French defence group Thales, Italy’s Leonardo and the UK’s BAE Systems gained between 12.3 percent and 28.6 percent.
Renewable energy companies such as Vestas Wind and Orsted jumped nearly 10 percent on growing bets of a shift away from Russian gas supplies.
REUTERS