European stock markets are broadly lower Friday as reports of continued intense fighting in eastern Ukraine chip away at the feel-good factor created by the European Central Bank’s surprise interest rate cuts Thursday.
Representatives from both sides of the conflict have gathered in Minsk, Belarus, in the hope of agreeing a ceasefire, but there were also claims from both sides that rebel forces had attacked the government-held port city of Mariupol. Western journalists tweeted reports of shelling in the city.
The city is the biggest in the second-largest in the Donetsk region, and is home to one of the country’s biggest and most profitable steelworks. It’s also a key staging post between rebel-held areas of eastern Ukraine and the Crimea, which Russia annexed in March. The rebels, who have reconquered large amounts of territory with Russian support in the last two weeks, appear eager to retake it before a ceasefire is agreed.
Markets had leapt on Wednesday in reaction to signs that at least a temporary ceasefire could be agreed. However, western leaders have expressed a lack of confidence in the willingness of Russian President Vladimir Putin to rein in the rebels he is supporting, and the E.U. is due to announce a new round of sanctions later Friday that may well lead to further retaliatory measures by Russia.
Leaked drafts suggest the new sanctions will ban all state-owned Russian oil companies from E.U. financial markets, as well as banning exports of all goods that can be used militarily. In addition, E.U. companies may also be banned from providing high-tech services to Russian projects, with a view to stopping the development of new oilfields.
By lunchtime in Europe, the Euro Stoxx 600 index and the U.K.’s FTSE 100 index were both 0.6%. Germany’s DAX index performed slightly better on the back of a positive surprise from industrial output data for July, which followed similarly strong numbers for new manufacturing orders Thursday. The figures suggested that the summer slowdown in Europe’s largest economy may have been overstated, analysts said.
Russia’s ruble was broadly stable and its benchmark stock index hit its highest in six weeks on confidence that a ceasefire would be achieved, largely on the terms laid out by Putin earlier in the week. Local markets shrugged off news that Russia’s foreign reserves have now fallen by $30 billion since the start of the Ukraine crisis, following a $3.5 billion drop in August.
