European stocks skid on tightening Russian sanctions, while defense companies rally

The German DAX DAX, -2.81% dropped 2.5%, the French CAC 40 PX1, -3.23% lost 3% while the U.K. FTSE 100 UKX, -1.36% lost 1.6%.

Futures on the Dow Jones Industrial Average YM00, -1.39% fell 510 points.

“The free world is uniting against Putin‘s war – and seems ready to pay a price for its resolve. The exclusion of major Russian banks accounting for 70% of the Russian banking market from the SWIFT system to make payments and the possibly even more far-reaching attempt to limit the use of Russia’s foreign exchange reserves of some $630bn can cause problems for financial and non-financial companies outside Russia,” said Holger Schmieding, chief economist at Berenberg Bank in London.

Financials were hammered. ING INGA, -9.44%, Unicredit UCG, -9.90% and Societe Generale GLE, -11.02% each dropped 11%.

Austria’s Raiffeisen Bank International RBI, -14.71%, which earned about a third of its profits from Russia last year, skidded 15%.

BP BP, -5.67% shares fell 7% as the oil giant said it’s taking a $25 billion charge to exit its 19.75% stake in Rosneft. Renault RNO, -9.74%, the owner of Russian carmaker Avtovaz, dropped 8%.

Anglo-Russian gold miner Polymetal International POLY, -54.27% dropped 52%. Nokian TYRES, -24.28%, which makes most of its tires in Russia, dropped 21%.

Defense stocks soared as Germany said it will set up a special €100 billion fund to upgrade its armed forces. Rheinmetall RHM, +31.48% shares jumped 32%, BAE Systems BA, +14.09% rose 14% and Leonardo LDO, +15.65% rose 13%.

The yield on the 10-year German bund TMBMKDE-10Y, 0.209% fell 6 basis points to 0.17%.

While the Russian stock market had not opened, U.K.-listed shares of companies including Sberbank SBER, -68.94% and Lukoil LKOD, -49.35% plunged. Russia’s central bank jacked up its key interest rate to 20% from 9.5%.