Friday 04/03/22

  1. In CURRENT ACTIONS, we look at Putin’s latest move, all of the companies abandoning Russia and Lukoil breaking ranks
  2. In POSSIBLE ACTIONS, we look at how a potential ban on Russian oil and gas might look and Bitcoin’s role in aiding oligarchs
  3. In CONSEQUENCES, the Russian market’s going to be ugly when it reopens, write-downs on Russian exit will be big and we look at the impact the war is having on the cost of living and the London property market
  4. In INDIVIDUAL COMPANY NEWS, Kroger’s earnings grow, Darktrace sees strong demand and ITV shares crater
  5. AND FINALLY, I bring you the adventures of my favourite golden retriever…



So businesses continue to head for the exit…

Putin vows to continue war as Russian missiles lay waste to Ukraine’s cities (Financial Times, Guy Chazan, Roman Olearchyk, Demetri Sevastopulo) gives us the latest depressing developments on this madness on the human front but companies are continuing to vote with their collective feet by abandoning what has been, until very recently, a lucrative market. More sanctions are coming in thick and fast as Airlines blocked from City insurance (Daily Telegraph, Oliver Gill) highlights a major blow to Russian aviation as the Lloyd’s of London insurance market has blocked access to Russian airlines and its space programme. This means that any future launches won’t be able to go ahead, or they will have to be made without insurance and finding insurance for future satellite launches will be increasingly difficult especially if the American, European and Japanese insurance markets follow suit. The London market accounts for 20-30% of worldwide capacity in terms of insurance, so this is a big deal because, basically, no insurance = no flights. Most aviation risk is insured – and reinsured – in Lloyd’s of London. Staying on insurance, Generali plans to cut ties with Russia (Financial Times, Silvia Sciorilli Borrelli, Ian Smith and Harry Dempsey) shows that Europe’s third biggest insurer is looking at shutting down its operations in Russia and stepping down from its Europ Assistance joint venture there as well.

Meanwhile, LSE suspends trading in 27 firms with strong links to Russia (The Guardian, Mark Sweney) highlights the London Stock Exchange’s response to the war, Schroders quick to retreat from Moscow (The Times, Patrick Hosking) shows that the investment manager has been exiting its holdings in Russian stocks which could soon be aided by stripping Russia out of MSCI and FTSE indices

(this is one way that fund managers measure their performance – their “benchmark”) and BlackRock back-tracks as critics lambast deal (The Times, Tom Howard) shows that the world’s biggest asset manager has now stopped investors from buying any more Russian securities after it had been criticised for buying shares in Polymetal, the Russian goldminer, just one day after tanks rolled into Ukraine, France and Germany detain Russian oligarch superyachts (Financial Times, Victor Mallet and Erika Solomon) shows that authorities are seizing oligarch assets as part of sanctions against Russia and Western brands flee Russia in unravelling of ‘capitalistic diplomacy’ (Financial Times) summarises which companies have abandoned Russia so far to varying degrees. The lengthening list includes Apple, Samsung, DHL, Kuehne + Nagel, UPS, FedEx, DPD and Harley Davidson while Ikea closes all stores and factories in Russia amid exodus of western firms (The Guardian, Jane Clinton and Sarah Butler) highlights a suspension of retail and manufacturing operations and M&S and Accenture among companies to shut up shop (The Guardian, Laura Onita and Howard Mustoe) gives yet more examples of businesses abandoning. Interestingly, Lukoil breaks ranks by telling Putin to end war (Daily Telegraph, Tom Rees and Giulia Bottaro) says that Russia’s second biggest oil company called for an “immediate cessation of the armed conflict” while expressing concern for the “tragic events” in a rare example of a favoured company stepping out of line. * SO WHAT? * I think one of the key things in all this is how much of the mothballing of operations in Russia will turn permanent over the longer term. It’s all very well shutting things down for a bit now, but what if heavy sanctions continue a long time into the future (for example, until Putin leaves office)? I have no doubt that companies will be looking at ways to make an elegant exit, but if they do so I would imagine it would be for huge losses because the usual list of potential buyers will be much shorter – and the ones that are left will no doubt put huge downward pressure on prices knowing that they are forced sellers.



We take a look at what other actions could be taken…

Will the west place an embargo on Russian oil and gas supplies? (Financial Times, Tom Wilson, Kiran Stacey, Andy Bounds and Claire Jones) highlights a question that many will be asking right now given that it is an uncomfortable irony that Putin’s actions are pushing up the oil price and we’re still buying oil from him. * SO WHAT? * Oil and gas supplies have, until now, remained largely outside sanctions but it is now looking increasingly possible that sanctions will apply. Many are distancing themselves already and consultancy Energy Aspects says that around 70% of Russian crude was “struggling to find buyers”. About 50% of Russia’s daily output of oil goes to Europe and energy export receipts were worth more than $235bn last year but because many buyers are already holding back, a formal embargo might not have that much of an impact. Gas is likely to be different, though, because as things stand at the moment, there are no alternative sources of gas supply that can make up for Russian flows in the near term. As JP Morgan’s head of energy strategy Christyan Malek pointed out, “You don’t have a Saudi Arabia of gas”. Very tricky times ahead as energy prices were already going up before the invasion but Ban on Russian gas ‘threatens social unrest in Germany’ (Daily Telegraph, Tom Rees) highlights just how dependent Germany is on Russian energy. Rather chillingly, the same article quotes analysts at Stifel who are now saying that if Russian oil supplies are rejected by the west, oil prices could hit $200 per barrel 😱.

Following on from what I was saying yesterday about crypto loopholes, Bitcoin faces day of reckoning as oligarchs race to rescue cash (Daily Telegraph, Matt Oliver) takes a look at how Bitcoin might be used to circumvent sanctions. Although the option of buying Bitcoin is only going to be a possibility for some it is likely to be very hard to trace as there are so many operators who fly under the radar. Binance’s chief is (obviously) against a blanket ban on Russian purchases at exchanges because he argues that a) it would only hurt ordinary people using the platform legitimately (Russian citizens may try to move money into Bitcoin to protect their money from a collapsing Rouble) and b) because it is no more susceptible to money laundering than more traditional checks. * SO WHAT? * It’s interesting to note here that crypto expert and partner at US law firm Dechert, Timothy Spangler, points out that a public ledger of every single Bitcoin transaction exists as a backstop against fraud and that law enforcement agencies who know what they are doing will be able to look at every single deal (although admittedly they would have to go through a LOT of data to get there). It can actually be quite simple to access – and so even though oligarchs COULD put their money into crypto, it could all be traced – meaning that it is not as much of a no-brainer as one might have initially thought. Still, EU seeks to prevent use of crypto to avoid Russia sanctions (Financial Times, Sam Fleming, Joshua Oliver and James Politi) shows that the Europeans are actively looking at ways they could make sure targets can’t dodge sanctions via crypto. FWIW, I have thought for some time now that crypto NEEDS to be regulated but have been sceptical as to whether that can be achieved because it needs global co-ordination to work (much in the way the minimum global corporation tax was reached) due to the ephemeral nature of crypto assets. However, if a horrendous war isn’t enough to get everyone who needs to be around the negotiation table I don’t know what will be!



Almost all actions have consequences – and everyone is going to suffer in some way…

Russia braced for market crash when Moscow stock exchange finally reopens (Daily Telegraph, Simon Foy) highlights the trepidation ahead of Moscow’s stock exchange reopening after four days of being closed following mounting sanctions. There is, as yet, no indication from Russia’s central bank as to when the stock exchange will open again. * SO WHAT? * This is its longest closure since 1998 when Russia was in the middle of an acute financial crisis which had massive repercussions for the Rouble and its debt. The expectation is that the market will collapse by epic proportions as foreign investors head for the exits and pull their money out. It is going to be carnage although the Russians have put in place what they can to stop the outflow. That said, asset managers including Aviva, Legal & General and Abrdn are among the many who said that they will sell out of their Russian holdings as soon as possible.

Meanwhile, Companies divesting from Russia are facing big write-downs (Wall Street Journal, Mark Maurer) highlights the hit that investments will take from an

accounting point of view while Invasion puts extra twist on cost of living spiral (The Times, Ashley Armstrong) provides a really useful look at how different industries have been affected so far and what the effects might be. In grocery retail, one supermarket boss said “Inflation + Ukraine = Yikes” as the expectation is for prices to rise more than had previously been expected, particularly since Russia and Ukraine account for 25-30% of global wheat exports and around 80% of sunflower seed; petrol prices are also hitting highs on a daily basis as the high oil price immediately filters down; gas bills are going to get even worse than they already were; consumer electronics and car manufacturing will also be hit by a potential shortage of rare earths, which Ukraine has in relative abundance – rare earths are used in components for smartphones, computer hard drives and screens, LED lights and electronic displays; as for interest rates, all these higher prices are going to be passed on to the consumer. Central banks can calm inflation by cutting interest rates but some will want to wait and see how the Ukraine war unfolds before “rushing in” to increase them. Tough times ahead.

Meanwhile, Tough measures on Russia set to reshape London property market (Financial Times, George Hammond) shows that the ultra high end of UK real estate is likely to slow down as the super-mega rich are likely to think twice about getting a London bolt-hole given the severity of government sanctions.



Kroger puts in a solid performance, Darktrace benefits from caution and ITV shares crater…

In other news, Kroger sales, earnings grow as higher costs persist (Wall Street Journal, Jaewon Kang) shows that the American supermarket announced a solid performance in the latest quarter as shopper seem to be eating more frequently at home.

Back home, Rush for more cybersecurity lifts Darktrace (The Times) shows that the British cyberdefence firm is seeing strong demand for cybersecurity which has encouraged it to increase its full-year revenue and margin

forecasts for the second time in just three months. No doubt the Russia/Ukraine war is bringing hackers to the forefront and making companies increasingly anxious about their capabilities.

Then in ITV shares dive on plan to challenge Netflix (Daily Telegraph, Ben Woods), we see that ITV shares cratered by a whopping 28% as investors signalled their displeasure at the company’s announcement of a push into streaming. It plans to meld its ITV Hub and BritBox into ITVX, a new streaming service that it hopes will double digital sales by 2026. * SO WHAT? * Talk about being late to the party! It may also be that having this expensive business will cannibalise its core terrestrial service, so a double negative whammy as this player limps into the very competitive world of streaming!



…in other news…

In these difficult times, I’m glad I stumbled upon Leo the golden retriever and his escapades! Have a watch of THIS VIDEO to catch up with him and his new little brother!

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Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq*DAX *CAC-40 *Nikkei **Shanghai **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)