Russian shares and European banks drop, defense stocks rally on Western sanctions

• Russian stocks in London plunge amid sanctions

• European banks take hit on Russian cut off from SWIFT

• BP offloads 20% Rosneft stake

• Rheinmetall surges as Germany announced defense spending boost

As Russia showed no intention to stop its aggression towards Ukraine, Western leaders decided to impose harsh sanctions on Russian financial institutions. Russian banks that are not involved in energy dealings were cut off from the SWIFT system while reserves of the Russian central bank were frozen. Meanwhile, more personal sanctions are being levied on Kremlin officials and Russian wealthy in order to inflict as much pain on decision makers in Russia as possible. Continued fighting as well as escalation on the sanctions front trigger big moves on European stock markets this morning.

Russian stocks plunge in London trading

Russian exchange authorities initially decided to postpone the start of today's trading session in Moscow from 7:00 am to 12:00 pm GMT. However, it is already known that no trading session on the stock or derivatives market in Moscow will take place today. Performance of Russian shares in London trading suggests that thesession in Moscow today would be an absolute carnage. London-listed shares of Russian Gazprom trade 50% lower on the day while Sberbank, which the ECB said is likely to fail under pressure of Western Sanctions, plunges 70%. In spite of an over-4% drop in oil prices, Lukoil dropped 55%. 

European banks take hit on Russian cut off from SWIFT

Banning Russian banks from SWIFT and freezing assets of its central bank will have a massive impact on the Russian financial sector. However, it will also have an impact on European banks that were handling payments for Russian exports and imports transactions and had exposure in the country. Italian UniCredit (UCG.IT) and French Societe Generale (GLE.FR) are among European banks with the biggest exposure to Russia. The former is trading 9% lower today while the latter drops 11%. German Deutsche Bank (DBK.DE) is also taking a big hit with a 9% drop today. Banks are the worst performing sector in the Euro Stoxx 600 index today.

As one of European banks with the largest exposure to Russia, shares of Societe Generale (GLE.FR) were underperforming since the launch of Russian invasion on Ukraine. Stock broke below the lower limit of the upward channel and snapped a mid-term upward trend. Bank's executives say that its Russian exposure is manageable but investors does not seem to be so sure. Source: xStation5

BP offloads Rosneft stake, warns of $25 billion charge

International pressure mounts not only on governments to do more to help Ukraine but also on companies. It should be noted that some companies from Western Europe have deep capital ties to Russian companies. BP (BP.UK) could have set an example that other companies will soon follow. UK oil supermajor announced that it will divest its nearly 20% stake in Russian Rosneft and warned that it may take a charge of up to $25 billion in the process. French Total also has a big stake in Novatek, Russia's second largest natural gas producer, and pressure to divest it will only mount following a move from BP. BP is trading around 7% lower today while London-listed shares of Rosneft plunge almost 50% in London trading.

Shares of BP (BP.UK) take a hit today after the company announced it will divest its almost-20% stake in Russian Rosneft. Stock is attempting to break below an important support, marked with the lower limit of the Overbalance structure at 3.57. Source: xStation5

Rheinmetall surges as Germany vows to increase defense spending

While stocks mentioned above have taken a big hit at the start of this week's trading, there were some stocks that rallied. Tensions in the Eastern Ukraine are increasing and governments are starting to fear that the long period of peace in the Old Continent may be over. As a result, Germany announced that it will boost its defense spending from around 1.5% of GDP in 2021 to above-2% - a NATO target. This in turn has resulted in an almost 50% price rally in stock of German defense company Rheinmetall (RHM.DE). As concerns are not limited to Europe only, traders may expect US defense stocks to also have a good session today.

Shares in German defense company Rheinmetall (RHM.DE) surged today after Germany's officials said that defense spending in the country will be boosted above NATO targets. Stock jumped over 50% at the start of the trading but has given part of the gains later on and pulled back to the 127.2% exterior retracement of 2018-2020 drop. Source: xStation5