Here's our summary of key economic events over the weekend with news all eyes are on Ukraine.
Although it might be the first day of Carnival in Brazil, it is the fourth day of war in Ukraine, a pall that hangs over the world. Obviously events move fast in war, but the following are of note. Russian forces seem bogged down in the north but are having an easier time pushing in from the south even if progress isn't that fast there either. Ukrainian resistance is holding for now. What is especially impressive is how much resistance is coming from Russian-speaking populations near the Russian border, especially around Kharkiv which is just 25 kms from the border. Russian forces entered the city, but officials there now say they have been driven out.
Russia has released its cyber hackers to go after "Russia's enemies'.
The EU has banned some key Russian financial institutions from the Swift payments network. It has also placed an airspace ban on all Russian aircraft.
After that, Russia put its nuclear forces on 'special alert'. It is not clear what motivated that - Swift or their forces getting bogged down - but it isn't a good sign.
The Russian Central Bank is struggling to keep up with a sudden rush in cash-note withdrawals from banks. Already high, just in the past few days Russians have noticed further sharp price rises. The odds are high that a big rate hike is coming soon to support the ruble that fell to 90:USD, although it is off that low now.
The Russian Central Bank has also come to the rescue of the oligarch-controlled major banks that face sanctions.
S&P has downgraded Russia credit rating from BBB- (the lowest investment grade) to BB+ and now a 'junk' rating. Moody's have issued a 'warning' they are about to do the same. S&P also cut Ukraine from B to B-. Meanwhile Fitch warned Ukraine could default given its parlous situation.
China has re-emphasised its key policy position that "sovereignty is sacrosanct" and has distanced itself from Russia. (A China that brings Russia to heel could make it a serious winner in this crisis, especially in Europe - but only if Ukraine comes out of this independent and with its original borders. China's inability to restrain Russia will make it look weaker than it claims to be.) China did not support Russia at a UN Security Council vote.
Away from Europe, new orders for US manufactured durable goods rose +1.6% month-over-month in January from December, following a revised +1.2% gain in December from November. The January result beat market expectations. January orders were +16.5% higher than for the same month a year ago. Capital goods orders also rose strongly, and are now up +32% from January 2021 and was led by non-defense capex investment (+42%). It is an impressive performance by the American factory sector. Despite Russia, markets noticed.
Perhaps driving this upbeat mood is American personal spending. Yesterday's upward revision of real GDP for Q4-2021 seems to be flowing in to 2022, and there was a surprisingly strong +2.1% rise in January personal spending. It was expected to be good, with a +1.5% monthly gain, but the actual result is far above that. Markets noticed this too.
Still American inflation remains high through all this increased economic activity. And war will make it worse, even if the war is far away. After last week's set of Fed officials talking up rate rises soon, two more were doing that over the weekend (Waller, Bowman), in fact touting a +50 bps hike.
In Japan and the rest of East Asia, polling shows that most people expect China to do something similar to Russia's adventure in Taiwan. Japan has now joined the EU and the US on the Swift payments block.
Meanwhile, Singaporean industrial production took a rather outsized fall in January. It's the type of drop they haven't had except in the grips of the pandemic.
In Australia, the head of Harvey Norman has warned: “You name it, no matter what product you come in to buy today, it’s dearer than yesterday, and it will be dearer again tomorrow. Prices are going up by +5, +10, +30%.” The head of a major supermarket chain has made a similar warning recently.
This sort of cost pressure is expected to see the RBA change its policy outlook on inflation with a sharp pivot even for 2022.
It is not all bad for Australia on the inflation front. Wheat prices could rise +50% from here and they are already at a nine year high.
The UST 10yr yield opens today at 1.97% and down -2 bps from this time Saturday. But it is up +4 bps from this time last week. The UST 2-10 rate curve starts today a little-changed at +40 bps. Their 1-5 curve is also little-changed at +76 bps but their 30 day-10yr curve is flatter at +190 bps. The Australian ten year bond is down -2 bps at 2.24%. The China Govt ten year bond is unchanged at 2.80%. And the New Zealand Govt ten year is also unchanged at 2.81%, exactly where it was a week ago.
The price of gold starts today at US$1889/oz and up +US$5/oz from where we left it on Saturday. This time last week it was US$1897/oz.
And oil prices are higher today, up +US$1.50 now just under US$91.50/bbl. The international price is just under US$94.50/bbl. This time last week the US price was US$90/bbl and the international price was US$91.50/bbl.
The Kiwi dollar will open today at 67.4 USc. For the week the rise is less than +½c. Against the Australian dollar we are at 93.4 AUc. Against the euro we at 59.9 euro cents. That means our TWI-5 starts today at just on 72.1 and a weekly rise of +60 bps.
The bitcoin price has held and is now an insignificant -0.3% lower that this time on Saturday. Volatility over the past 24 hours has been moderate at +/- 2.1%.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».
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119 Comments
Wonder how strong & secure Putin actually is? The whole nation looks basically feudal. The King, the fat Lords, the Bourgeois, the Serfs. Now if the fat ones start losing some of their fat, well history is riddled with those sort of palace revolutions. And if enough serfs are squeezed, then there is the old trouble-at-t-mill.
I hope you are right. I used to think that Putin played a clever strategic game, but he has seriously overplayed his hand this time. He may be able to cause a lot of damage before he goes but he looks totally isolated from the rest of the world, with few of his own people backing him willingly. This is Putin’s war rather than a Russian war.
This is war in a time that Putin appears to no longer have a complete grasp of (though does anyone?). Putin: Announcing a war from behind a desk, with large landline phones in the background. Zelensky: fighting back on the ground, in front of the camera, on tik tok, youtube, other social media as well as traditional diplomatic channels.
'interesting times'. Though quite different, I am reminded of this great book - The Emperor - https://www.penguin.co.uk/books/574/57484/the-emperor/9780141188034.html. Great author, great writing - am sure there would have been some keen analysis of what's happening today.
I'm interested in watching Reddit - so much more information. An example - the President of Ukraine tweeted Elon Musk and asked for help. He responded (tweet uploaded) that he has given them access to his satellite and more help was on the way.
Another item of note was the number of volunteers from all over the world heading to fight (2 from NZ as of last night), but a lot from Israel.
Our news seems to be all about the mandate protests.
Just be aware that Reddit is one of the more heavily censored platforms on the Internet. That said, most "live feeds" these days just seem to be tweet aggregators, and Twitter is right up there in terms of heavy-handed censorship, too. I'm not quite sure where to go for unbiased coverage these days.
No - Putin is a mensa-level intellect with a photographic memory. Although, granted, a psychopath.
But this is part of a last-one-standing Great Game - don't believe all you hear from our filters, or indeed theirs.
What the punters aren't being told, is that there isn't the energy or the resources, to re-start real global growth from here on in. That can't be said out loud, so we have to 'otherise' others, to justify fighting them for what remains. He knows this - I doubt Biden is capable of grasping it, Boris is a joke, Merkel is gone; will be interesting to see who, if any, rises to 'statesperson' level.
Only if they want to poison their troops. The dome over the reactor contains the radiation. they would have to be inside it to be protected from attack, but the radiation would kill them. Some reports I've read suggest the immediate surrounds are still radio active too. Have they got designs to recover material?
Russia put its nuclear forces on 'special alert'.
Shouldn't a nuclear deterrent always be on alert? I mean it would be inconvenient if Vlad called and Olga, the cleaning lady, had to explain to him the bloke with the launch codes was on a skiing holiday for six weeks.
I read somewhere that China wasn't advised of the invasion. I have no idea how true that is, only they would know.
You would think they would be pissed off if that is the case.
If China is being less supportive than Putin expected, that will be pissing him off too.
Did a quick squizz as to the US carrier group locations per ship tracking sites. In the Pacific Carl Vinson is in Hawaii, George Washington is steaming up the east coast of Aussie, Ronald Regan is in port in Japan. Those three are the closest to WestPac so out of position really, but likely able to move fairly quickly if required, but still days away.
The Truman is in the Adriatic which is interesting. Could be in a position to help if the US decides to act.
"China did not support Russia at a UN Security Council vote."
China abstained, in other words, they stayed out of this or stting on the fence. Watching to see if the US and allies can take down Putin.
This morning, after four days of terror attacks residential and infrastructure, Kviv has not fallen.
China did not support Russia at a UN Security Council vote.
They abstained and did not vote against Russia as did India and UAE.
Of course they abstained; I mean what's the world coming to if you can no longer declare that a place was always part of yours and that by taking it over you are not "invading", as you can't invade yourself.
Irredentism is a great evil.
https://en.wikipedia.org/wiki/List_of_irredentist_claims_or_disputes
No more disingenuous than the US - as Audaxes link points out. WMD was a totally bu---hit concoction.
But the link headline is wrong: the real problem facing the world is the lack of remaining planet, the overpopulation of one species, and the inevitability that we fight over what's left.
Those who hide behind 'that dratted Putin, Trump, whatever'; miss the point.
After that, Russia put its nuclear forces on 'special alert'. It is not clear what motivated that - Swift or their forces getting bogged down - but it isn't a good sign.
Hmmm...
Commenting on a statement by German Defense Minister Annegret Kramp-Karrenbauer that the West must be increasingly decisive in its deterrence of Russia, demonstrating its readiness to employ nuclear weapons, the deputy secretary of Russia’s Security Council pointed out that it is "quite irresponsible" for an official of this level.
"Moreover, considering that Germany does not possess nuclear weapons, this statement can be viewed as a call on the United States to use its nuclear potential, including tactical nuclear charges deployed at forward bases in NATO countries," the security official said. Link
To be fair - no one wants a war with anyone politically. The various military - industrial complexes may be rubbing their hands in glee though. What most countries want is strong trade with stable democratic countries with people who have the capacity to spend money.
But then politicians are unpredictable. Years ago a US General, Westmoreland, I think was being challenged by congress about a recommended response to questioning over Viet Nam and when told that military men just want a war, he responded along the lines that having pointed out that it was politicians who start wars, it was the military who would finish it.
"Hell," Patton exploded, "why do you care what those goddam Russians think? We are going to have to fight them sooner of later; within the next generation"
" Shut up, George, you fool" McNarney told Patton. "This line may be tapped and you will be starting a war.....".
"I would like to get it started some way......In ten days I can have enough incidents happen to have us at war with those sons of b----es and make it look like their fault. So much so that we will be completely justified in attacking them....."
Ladislas Farago, Patton: Ordeal and Triumph, Obolensky 1963)
Be very aware.......
What they actually want is regime change in Russia. no wonder Putin is paranoid, how many years has all the economic and others actions overtly and covertly been going on, I remember this happening in the second half of Obama term which intensifying after the US reset with Russia did not actually happen.
Putin might be in a military conundrum here.
I assume he wanted to invade 'gently', so as not to totally despoil his reputation, both abroad and at home.
Russia obviously has the firepower to whack Ukraine much harder and move the war along, but that would come at both greater human and political cost.
A big problem for him is the longer the status quo war situation continues, the more Russian soldiers will die.
But if he gets his bigger toys out, many more Ukrainians will die, and that's not without consequence for him either.
And a part of his problem is his statement about "de-nazification" of Ukraine, while it is his actions that appear to be closer to the Nazi's. Plus those of some of his soldiers. The footage of the tank driving over a civilian vehicle trying to get away being a case in point.
I wonder why Ukraine's president won't do the same negotiations with Russian's before end war started? I have always said War is always the start of the negotiation. War is never the end.
It just depends at which rung of the ladder a person is sitting when they start the negotiation.
But certainly the whole country is paying the price of global politics of power and control.
Russia doesn't release figures but, according to the Ukrainians, the Russians have probably lost more men in the first four days of this war than the Coalition lost in nearly 20 years of war in Afghanistan. Given the rapid mobilisation of Ukrainian militia this could easily snowball as the Russians stretch thinner occupying more ground making them more vulnerable.
I suspect that it isn't an oversight that so many Russians are running their vehicles out of fuel and surrendering either. Most of those kids where told they where on field exercises and don't want to be there.
I guess Russians don't care how many they loose. It's quite clear from their history and previous wars. They will do anything to win.
A fight is between the two equals. Otherwise it's a suicide for the weak unless they have nothing to loose like in Afghanistan.
I am sure Ukrainians will use the brain and nego because every have lot to loose otherwise being on their own. World is not coming to save them and only sending them weapons which they might not know how well to use or had much training.
And weapons only kill. They do not discriminate on who they kill.
Good morning fellow interest degenerates.
Russia just not catching a break right now. Ukraine still holding strong, Russia and now Belarus getting pounded with sanctions, asset freezes, no fly zones etc and Ukraine getting weapons European countries. The list goes on.
Even memelord Elon answering Vice Prime Minister of Ukraine's plea for help and activating Starlink for Ukraine.
Some amazing videos on twitter of things going on that you won't find on stuff or the herald.
Wait until the Russia stock market opens, it is going to be chaos.
Just in: Swiss president Cassis says it is "very probably" Switzerland will follow the EU and by sanctioning and freezing assets of Russia lol. Even Switzerland is choosing a side for once it seems.
I agree, it will be weeks b4 our journos go to Reddit and read the latest. I was recently in the volunteer Ukraine site and see an English speaking group are heading to fight, including some Kiwis.
I understand that our news channels don't have people on the ground, but they could at least stay up with the latest.
In the 21st century we should look at negotiating not fighting. This war of it goes beyond Ukraine is not going to end well for humanity.
Nuclear weapons do not care who they kill.
Some talk on going to Mars, I want to get on that rocket now and leave these idiots behind.
We have such idiots as our leaders.. Back to 1940's. Humans have not become anymore intelligent in a century.
That's what Putin wants you to think. As evidenced by his speeches he wants to revive the russian empire.
The reason he didn't want Ukraine in NATO is because he planned to take it at some point. Talk of NATO accelerated his plans.
If Ukraine had joined NATO 10 years ago we wouldn't be where we are. Likewise if Ukraine had kept their nukes in the 90's.
Maybe the invasion was never going to be all Ukraine. Lost it now but some commentator here last week suggested the Russians would take over the republics who had broken away from Ukraine, incorporate some of the ethnic Russian areas and secure the water supply for the Crimera that Ukraine had cut off. (noting the water thing is massive)
Some interesting assumptions I have come to.
It looks like a lot of the Russian Military are the "B" team so to speak. Seems to be that domestically, Russia is playing it that Ukraine rebelled and they are assisting. With most of the "B" team meant to die quietly in Ukraine to be passed of as rebels.
However the power of the internet and Ukraine's promise to repatriate all invaders bodies, is putting pay to this.
The power of the average person is also being displayed. Europe wanted to stay out but the voters appear to be saying no. Many will remember tales from mum/dad/grandpa/grandma about WWII, and appear to be applying more pressure on their respective Governments. The same in Russia where the web is showing them just how isolated they are.
Russia are now in a position where they must go hard or go home, and Putin seems to have vetoed the latter.
Their largest trading partner is China and apparently, because they knew, they were very long commodity's and are in a strong financial position. Bear in mind Russia has debt to GDP of 18% vs UK/US at 120%. They are the largest land mass on the planet and commodity rich. The West can try and "cancel" them but that will not work, we will be hostage to them and China as we go to renewables. We are going to need their affordable energy and manufacturing for our first world lives.
TK - conflating again? Financial position is an oxymoron, the first word refers to debt-issued, belief-backed digits. The second is a physics term.
Land, yes, but it's what can be produced off it, and they've got less solar gain than many, Wheat may be the lever; it's energy (solar to food) and Russia and Ukraine between them produce 30% of global supply (I'm told).
I presume by commodities you mean resources? Conflation again? Yes, rich in some - but NO nation on the planet, is self-sufficient in essential mineral stocks. None.
Affordable energy is in the rearview mirror now - we're too far down the EROEI (or ECOE, if you prefer) ladder; renewables and cheap no longer belong in the same sentence. Unless you're a politician......
Not anymore, 15% weaker now. 83 RUB/USD today vs 73 in November
And if you believe the telegraph, Russian banks are selling USD at 120 RUB/USD
https://finance.yahoo.com/news/russia-braced-free-fall-rouble-101939886…
The high in Nov was 75.5 towards the end of the month. You may well be right and it is much higher on the black market, I could believe that. Nevertheless, it's a high resource low debt economy that was prepared for war. I can see Chinese banks lining up to bank the Russians, maybe the use crypto in the future as well?
100 RUB/USD is no longer the black market rate, just the 'market rate'
https://finance.yahoo.com/quote/RUB=X/
It's dropped 46% since your November base, hardly 'holding up well'.
"Be extremely subtle even to the point of formlessness. Be extremely mysterious even to the point of soundlessness. Thereby you can be the director of the opponent's fate." Sun Tzu
Judging from the comments here nobody has a clue what Putin is after so I guess he got that bit right. Or I could put it down to a lack of comprehension on the general media.
Once the dogs of war have been unleashed anything can happen.
Any economic downturn from now for the next 2 or 3 years will be blamed on the Russian invasion of Ukraine. Convenient for the political class of whatever persuasion. Similarly on the energy crisis and more so in Europe/UK. They were on a hiding to nothing before due to their energy policies and now have a convenient whipping boy.
A relative in London, about 12kms SE of the City, has been advised by their energy supplier of an estimated annual price increase. Advised about 5 months ago. Electricity up 42%. Gas up 65%. Elec/Gas cost ratio 1.52 before increases, 1.31 after increase. Another increase coming in about 6 months time. Its a new 3 storey house block so will be energy efficient.
I don't know what was driving the gas prices up before the invasion. I thought there was plenty of gas around.
De-nazification. A real oddity. Zelensky is Jewish and so is half his cabinet (source Aljazeera TV news and wherever they obtained it)
The political class in general find it easy to spend other peoples money and exhort others to die. Not the army, but citizens in general.
I sincerely hope Kiev or Khakiv don't turn into an Aleppo by conventional means. This could quite easily happen in city fighting.
De-nazification. A real oddity. Zelensky is Jewish and so is half his cabinet
Germany is livid, as Russia played it nicely while Spetsnaz was getting ready to go for the neo-Nazi brigades who were Berlin's secret weapon in Ukraine. Berlin now realises Moscow had known all along Germany's doublespeak; mutual trust is zero. Link
So much for NATO's non-intervention & Germany's platitudes about dialogue and negotiations..."it is unclear what assistance Kahl’s agency is offering Kiev." Link
I have a number of friends in Greater London, they all say the same. I have said this before, Net Zero is going to reduce our quality of life and hand considerable geo-political power to the Russia/China axis. The West will be highly indebted/financialised vs China/Russia/Iran/Mongolia commodity rich making the things the West needs.
Given that fossil feedstocks are finite and being depleted exponentially-faster while being degraded equally; your friends miss the bigger point.
London is unsustainable, ex fossil energy, and fossil energy is going ex, fast.
The biggest - squalid - city before fossil energy got perhaps to one million. Only by a constant influx, but. I don't have friends in London; any who were, have gotten out......
London has a choice. Go woke, go broke.
"It means the 37.6 trillion cubic meters located in the northern Bowland Shale gas formation will continue to sit unused -- when just 10% of this volume could meet UK gas needs for 50 years," it said."
https://www.spglobal.com/platts/en/market-insights/latest-news/natural-…
“The work revealed that the sea bed holds up to 20 layers of coal extending from Britain’s northeast coast far out under the sea — and that much of it could be reached with the technologies already in use to extract oil and gas.
“We think there are between three trillion and 23 trillion tonnes of coal buried under the North Sea,” said Dermot Roddy, formerly professor of energy at Newcastle University.
...Two billion tonnes of coal is, in energy terms, the amount of energy we have extracted from the totality of North Sea gas since exploration began."
https://www.walesonline.co.uk/news/wales-news/now-king-coal-set-rule-69…
Gas yields from HPWP of UK Bowland Shales are comparable with those from degassed cores, with the ca. 1% porosity sufficient to accommodate the gas generated. Extrapolating our findings to the whole Bowland Shale, the maximum GIP equate to potentially economically recoverable reserves of less than 10 years of current UK gas consumption.
"Our work further supports previous authors’ core-based studies in concluding that the Bowland Shale holds good reservoir characteristics, and we propose that there are multiple intervals within the shale that could be targeted with stacked horizontal wells, should those intervals’ mechanical properties also be suitable and there be adequate stress barriers between to restrict vertical hydraulic fracture growth. Finally, our rock physics templates may provide useful tools in interpreting pre-stack seismic data sets in prospective areas of the Bowland Shale and picking the best locations for drilling wells."
Some facts that may shed more light on the current Ukraine-Russia conflict:
- In 2012, new deposits of natural gas off the Crimean peninsula were found. Oil deposits were found in eastern (near the "independent' Donbas area) and western Ukraine (between Belarus and Moldova).
- These would have made Ukraine the 2nd largest oil and gas producer in Europe after Russia.
- Ukraine was Russia-friendly then, but in 2014 the Russia-friendly government was ousted and a pro-western government elected in.
- Ukraine controls a substantial pipeline from Russia to Europe and has since increased the cost to Russia of using the pipeline to billions every year.
- NATO in 2008 welcomed the idea of admitting Ukraine and Georgia as NATO members. With the discovery of the gas and oil, the EU even more courted Ukraine as a new NATO member.
- Since Russia annexed Crimea, Ukraine has cut off water supply (via a canal diverting from the Duniper river) to the 2 million people in Crimea. Water levels are down to 7% of what it used to be and there's severe rationing .
Both MILITARILY (if Ukraine was attacked by Russia, it would be able to declare article 5 and bring the full might of NATO against Russia and reclaim the Crimea) and ECONOMICALLY (Europe can turn to Ukraine for oil and gas instead of Russia) Russia would stand to lose in every way with the way Ukraine was heading.
As the saying goes, follow the money...
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