Monday 28/02/22

  1. In MACRO NEWS, Putin puts nukes on high alert, China continues with pro-Russia neutrality stance and the prospect of global recovery fades
  2. In NEWS ON SANCTIONS, CONSEQUENCES & RESPONSE, Russian interests in the air, sea and land face challenges while Germany ups spending on gas and Sunak faces appeals to lessen the blow of sanctions
  3. In FINANCIALS NEWS, India gears up for a mega-insurance flotation and UK insurers brace themselves for a payout increase
  4. In MISCELLANEOUS NEWS, Big Tech faces pressure over its Ukraine stance and the UK high street stages a recovery
  5. AND FINALLY, I bring you a bit of soothing music…

1

MACRO NEWS

So the Ukraine situation continues to escalate, China stands firm and global recovery takes a blow…

The crisis in Ukraine is beyond words. Many stories that we see now of tragedy, sacrifice and loss make everything else pale into insignificance. However, I will continue to bring you news on this and everything else in the business and financial markets news because it may well have repercussions that have major consequences for us all and that we still need to understand better.

Putin puts Russian nuclear forces on high alert as west steps up sanctions (Financial Times, Max Seddon, Roman Olearchyk, John Reed, Guy Chazan, Henry Foy, James Politi and Demetri Sevastopulo) highlights a fluid situation as Putin reacted aggressively to the world’s efforts to put sanctions on his regime. Talks are supposed to be occurring between Russia and Ukraine, but I don’t think anyone’s holding out much hope. Over the weekend, the US, UK, Canada, France, Germany, Italy and the European Commission issued joint sanctions that said they would stop Russia’s central bank from using international reserves that they might try to use as a buffer against sanctions. In addition, some Russian banks are to be removed from SWIFT – more of which a bit later.

Meanwhile, Xi pursues policy of ‘pro-Russia neutrality’ despite Ukraine war (Financial Times, Kathrin Hille) shows that China continues to walk a fine line between supporting global peace and stability on the one hand and the behaviour of its Russian neighbour on the other. This is what they did before in 2008 when Russia sent troops into Georgia and in 2014, when Moscow annexed Crimea. It avoided directly endorsing the actions, but didn’t criticise them either. It remains to be seen whether the relationship will be strained by more bloodshed in Ukraine, but for the moment Russia has China’s backing – particularly on the subject of not letting NATO expand. * SO WHAT? * Given that China supports Russia and Russia is facing major sanctions, there will definitely come a point where more sanctions may have to be put on China given that China is likely to be helping Russia. At the moment, this isn’t the case, but I think this is likely to become an issue as time goes on.

Then in Russia’s invasion of Ukraine threatens global recovery (Financial Times, Amy Bell) we see that, somewhat unsurprisingly, the world’s economic recovery from the depths of Covid is likely to have major repercussions. Europe relies on Russia for about 25% of its oil and over a third of its gas and as consumers watch events as they continue to unfold, there is an increasingly likelihood that they will save and not spend, leading to major economies grinding to a halt at a time when consumer confidence has already been wavering in some countries.

2

NEWS ON SANCTIONS, CONSEQUENCES & RESPONSE

Condemnation turns to sanctions, which have consequences and responses…

Following escalation, Russian airlines facing a near-total blockade from European airspace (The Guardian, Joanna Partridge) shows that Russian airlines have been banned from the airspace of nearly 30 countries in response to the invasion. This will obviously result in longer journeys, make planes use more fuel and cost airlines way more to operate. * SO WHAT? * Going the other way, flights from Europe to many Asian countries will be hugely affected in a similar way if they are banned from Russian airspace – and I am thinking that passengers will also be more reluctant to fly over this area even if there is no ban. This is yet another headache for an industry that was on its knees during the pandemic and was only just starting to look forward to a recovery in the second half of the year.

In addition, UK considers banning Russian ships from ports (The Guardian, Severin Carrell) shows that our government is thinking about further restrictions on the sea – although at the moment there is no restriction in place, much to the consternation of many who work in the ports themselves. Chip sanctions aim for Russia’s military and its tech industry hopes (Financial Times, Aime Williams, Eleanor Olcott and Kathrin Hille) shows that the US is banning the export of a lot of tech, including supply of chips from the likes of Intel and Nvidia, much along the same lines as the ban on supplying Huawei. It is interesting to note that as western companies like Ericsson pull out of Russia, they will be leaving space for Huawei (which has been kicked out of many countries’ 5G expansion already) and SMIC (China’s biggest chipmaker) to fill. Meanwhile, BP to divest stake in Russian state-oil company Rosneft (Financial Times, Tom Wilson and Guy Chazan) shows that the optics of BP having a 20% stake in a Russian state-owned oil company have just become too much to bear and so the company is to offload it for an undisclosed sum over a period of time and BP’s chief exec Bernard Looney will resign from the Rosneft board “with immediate effect”. This came as Norway’s sovereign wealth fund said that it would be selling out of all of its Russian assets. Sanctions: dithering EU willing to freeze Russian central bank – but not German homes (Financial Times, Lex) shows that the

EU is going to be expelling some Russian banks from the payment network SWIFT, which will make things on the Russian side more difficult, but City awaits ‘collateral damage’ of Swift ban (The Times, Emma Powell) shows that, in doing so, it won’t only be Russia that will suffer.

There were a lot of consequences that followed Russia’s invasion of Ukraine – Kremlin races to stop a run on Russian banks (Daily Telegraph, James Titcomb and Theo Merz) shows that Russia’s central bank was trying to bring in new measures to avoid a sell-off of Russian securities (e.g. ordering market participants not to take foreign investor bids to sell securities) while its citizens were rushing to cashpoints, fearing that banks would run out of money. It is possible that sanctions could lead to Russia introducing things like limiting cash withdrawals and converting rubles into foreign currencies. European aircraft lessors in race to recover $5bn of planes from Russia (Financial Times, Sylvia Pfeifer) shows that companies like AerCap, the world’s biggest lessor of planes, has 154 planes leased to Russian customers, with a value of around $2.2bn (around 5% of the value of its global fleet) and SMBC Aviation Capital which has about $1.3bn worth there. With the new sanctions, they have 30 days to recover hundreds of planes thought to be be worth about $10bn. Spare parts are also included in the ban. * SO WHAT? * All of these things are going to be painful – and particularly so given the drubbing that the aviation industry has taken over the pandemic. It remains to be seen how compliant airlines are going to be about returning planes – for instance, it is thought that Aeroflot has leased about 50% of its fleet from non-Russian lessors.

Then in Germany moves to cut Russian gas reliance (Daily Telegraph, James Titcomb) we see that the country announced plans to build its first LNG gas terminals to break its current dependence on Russian gas, which is clearly a longer-term solution following its refusal to approve the Nord Stream 2 pipeline. Meanwhile, Sunak must offer more support to counteract damage of sanctions (The Guardian, Richard Partington) is a call for the Chancellor to try to introduce measures that will cushion the UK economy from sanctions that we will be imposing on Russia – like postponing the proposed hike in national insurance and plans for fuel duty. I imagine that many groups will be fearful that the current conflict will put much-needed measures on the back-burner that will ultimately damage the people with most exposure to big price rises.

3

FINANCIALS NEWS

India braces for LIC and UK insurers brace for payouts…

In India seeks ‘Aramco moment’ with sale of stake in LIC (Financial Times, Chloe Cornish, Hudson Lockett, Ian Smith and Jyotsna Singh) we see that the Indian government is now making plans to sell a 5% stake in the state-run Life Insurance Corporation of India in what would be the country’s biggest-ever IPO that could raise in the region of $8bn. It is said that this could be to the Indian government what the flotation of Aramco was to Saudi Arabia’s government. It has $495bn in assets under management – more than triple the amount that all other life insurers in India have – and issues almost 75% of all individual insurance policies in the country. When it does its IPO, it could become India’s third biggest company in terms of market cap. * SO WHAT? * It sounds like this thing will

fly when it comes to market, although this will, of course, depend on valuation and market conditions. It has massive market share and has pretty attractive prospects if the number of those in the Indian middle classes swell in number, as they are expected to over the coming years. 

Then in Insurers brace for payouts after Wolseley owner wins Covid case (Financial Times, Jane Croft and Ian Smith) we see that insurers are going to be facing big increases in Covid-related payouts after the owner of Wolseley, Corbin & King, won a business interruption case against Axa on Friday at the High Court. Oooooh – this is going to be painful for the insurer…others will be getting very nervous as well especially as Mrs Justice Sara Cockerill said in the judgment that the case affected “not just these litigants but a considerable range of other businesses”. * SO WHAT? * This has been a really sensitive subject as debate has gone this way and that over whether insurers should pay out to companies for being forced to lock down during the pandemic. I suspect we’ll see more cases like this as time goes on – but for many, it’s already going to be too late…

4

MISCELLANEOUS NEWS

Big Tech faces more pressure and the UK high street shows signs of recovery…

In other news, Facebook, Apple and other tech giants face rising pressure over Ukraine (Wall Street Journal, Tripp Mickle and Meghan Bobrowsky) shows that US tech giants are under pressure from both Russia and the west on what they are going to do about the invasion of Ukraine. Initially, Russia restricted access to Facebook while Facebook said that it was prohibiting Russian state media from running ads and Twitter said that it had also limited access. * SO WHAT? * Given the increasing pressure of regulators and

lawmakers on social media platforms at the moment, you would have thought that taking positive action now on this situation would ultimately help Big Tech’s cause. It’s early days yet, but if they did decide to take action I think it would have a huge effect, especially on morale.

Although it feels weird to talk about things like this at the moment, UK high streets bounce back from Covid curbs as London falters (Financial Times, Chris Cook) shows that the UK high street has been bouncing back as sales are reaching pre-pandemic levels now in most places. However, on the one hand you have the positive effect of Covid restrictions being lifted last week but on the other there is the possibility that people will rein in spending over fears of the impact of the conflict in Ukraine.

5

...AND FINALLY...

…in other news…

Given what’s going on currently, I thought this might provide some light relief. Yes, it’s Pomplamoose again – but they’re great!

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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!

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