- In NEWS ON MARKETS, SANCTIONS & CONSEQUENCES, markets had a rollercoaster ride, more sanctions were imposed and consequences ensued
- In CONSUMER-RELATED NEWS, UK train fares rise from today, petrol prices hit new highs, ABF says more food price increases are in the offing and first-time buyers get a boost
- In INDIVIDUAL COMPANY NEWS, Zoom slows and Klarna counts the cost
- AND FINALLY, I bring you a man who gets pleasure from a vacuum cleaner…
NEWS ON MARKETS, SANCTIONS & CONSEQUENCES
So markets react to sanctions and consequences…
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.
Rollercoaster day for shares after Russia hit with sanctions (The Guardian, Phillip Inman) shows that markets whipsawed yesterday as investors reacted to the latest round of sanctions on Russia. Some of the world’s biggest companies were still considering their responses, restrictions on financial transactions are about to kick in and Norway’s government is forcing its $1.3tn oil fund – the world’s biggest sovereign wealth fund – to sell its $3bn in Russian investments. The share prices of HSBC, NatWest, Barclays, Lloyds, Prudential and Legal & General all fell sharply as investors rotated into defence stocks like BAE Systems and Chemring. Companies with strong relations to Russia all suffered.
In terms of sanctions, US bans transactions with Russian central bank (Financial Times, James Politi and Colby Smith) shows America’s strongest sanction yet as it also imposed more restrictions on the Russian Direct Investment Fund along with its chief exec Kirill Dmitriev to stop Putin from raising funds abroad. Although Russia has been increasing its reserves over the last few years, most of it is actually not in Russia itself. 14% is in China and most of the rest is in the US, Germany, France, the UK, Austria and Japan. Meanwhile, Europe unites to reject Russian gas (Daily Telegraph, Helen Cahill) shows that plans are afoot for the UK to join in with Europe in efforts to wean Germany off Russian gas (did you know that fossil fuels account for over 60% of Russia’s exports?) and Swiss break neutrality tradition to match EU sanctions on Russia (Financial Markets, Sam Jones) shows a major departure for the Swiss as it said that it will match the full range of EU sanctions applied on February 23rd and 25th, freeze certain assets and end visa-facilitation services which have made it easier for Russians to enter Switzerland since 2009. These latest moves will transform the country from being one of the most accommodating countries for Russians to the least accessible.
In the UK, Russian vessels to be banned from British ports, says Grant Shapps (The Guardian, Rob Davies and Severin Carrell) shows that the transport secretary implemented a move to ban “access to any Russian flagged, registered, owned, controlled, chartered or operated vessels” yesterday that will hamper Russia’s war efforts, Drop Kremlin-linked clients, No10 tells City law firms (Daily Telegraph, Helen Cahill) shows the government putting increasing pressure on advisors to Russian companies as Caviar Express heads for buffers (The Times, James Hurley) goes into more depth regarding the naming and shaming of companies such as consultancies Hudson Sandler (which bills itself as “Russia’s leading strategic communications consultancy” with clients like Petroplovask and En+) and FTI, law firms such as Enyo Law, Hogan Lovells, Freshfields Bruckhaus Deringer and Linklaters and banks such as Citigroup, Credit Suisse, JP Morgan, Bank of America Merrill Lynch, Sberbank, CIB and VTB Capital. The “Caviar Express” refers to the lucrative deal flow coming from Russia. I thought that Cryptocurrencies are the Kremlin’s sanctions-busting superweapon (Daily Telegraph, Ben Wright) was worthy of
mention because it suggests that, given all the “legit” central banks tightening the noose on Russian finances, cryptocurrency is an area that needs addressing asap as the country might try to raise funds here and circumvent central banks. Although reliance on the dollar has its critics, the choice of a crypto-clampdown comes down to whether you want to protect financial freedoms at a cost of helping despots fund WWIII.
In terms of consequences, Sanctions deal hammer blow to every sector of the economy (Daily Telegraph, Tim Wallace) shows that restrictions are having a major effect on the finance sector (Sberbank’s London-listed depository receipts fell by almost 70% yesterday and credit rating agency S&P is looking at downgrading its rating of Promsvyazbank), commodities (which make up 10% of GDP, 70% of goods exports and 21% of government revenues. The country produces 1/8 of the world’s oil, 1/6 gas, 1/10 of its wheat and a great deal of copper, aluminium, nickel and gold) as well as retail and travel (Russians’ ability to travel will be severely restricted and Aeroflot won’t be able to operate its most lucrative routes).
There was a big hoo-hah about BP holding a 20% stake in Gazprom, which it says it is now ditching, but now Shell joins BP and Equinor in pullback from Russia (Financial Times, Neil Hume and Tom Wilson) shows that the oil supermajor is pulling out of all three of its joint ventures with Gazprom, BP and Shell’s Russian exits put pressure on peers to follow suit (Financial Times, Tom Wilson and Neil Hume) shows that other companies like TotalEnergies, ExxonMobil, Trafigura and Glencore will no doubt be expected to take similar actions with their Russian interests. BP’s decision to sell Rosneft stake is ‘right thing to do’ – but real challenge will be to find a buyer (Daily Telegraph, Rachel Millard) reflects the other side of BP’s new stance as private or state-backed companies from places like China or Venezuela would be most likely to buy as increasing numbers of investors look to sell their Russian assets as well. BP/Rosneft: divestment is long overdue (Financial Times, Lex) says that BP can afford to take the hit, but it also has the added bonus that this move will accelerate its moves away from oil and gas given Rosneft’s relative lack of commitment to environmental initiatives.
In addition to the above, Equinor and Daimler Truck cut Russia ties as Volvo and JLR halt car deliveries (Financial Times, Richard Milne, Joe Miller, Sarah White and Peter Campbell) shows that Norwegian oil group Equinor and Germany’s Daimler Truck are terminating their partnership with Russian businesses while Volvo and JLR stop deliveries to Russia and The hacker collective that has declared cyberwar on Russia (The Guardian, Dan Milmo) shows that Anonymous is now getting involved. The City has disgraced itself over Russia (Daily Telegraph, Ben Marlow) makes a really good point about one of the shortcomings of ESG investing – that the exclusion of “sin stocks” which are involved in, say, defence and weapons means less access to capital for companies that make things like guns and fighter jets, potentially limiting nations’ actual firepower but Defence groups soar after invasion (The Times, Robert Lea) shows that this might change, particularly in light of Germany making a massive shift its defence policy to increase military spending from 1.53% of GDP currently to 2%. In the meantime, though, ‘This is a mess’: anxious Russians grab cash and plot emigration (Financial Times) reflects what’s going on with ordinary Russian citizens as they queue up at ATMs to get cash and banks to get dollars as sanctions bite and the ruble collapses. According to Google trends, the search for the word “emigration” increased fivefold last week in Russia and polling centre Levada said that the number of people keen to leave the country shot up in February to 22% of all Russians and almost 50% of young people.
Consumers continue to face rising prices but first-time buyers get a boost…
Other news does seem to be somewhat mundane compared to what’s going in the world at the moment, but Train fares to rise by 3.8% in England and Wales as London tube strike begins (The Guardian, Gwyn Topham) highlights yet another price rise for consumers/commuters to contend with – upping the price of an annual pass by several hundreds of pounds for some. Then Price of petrol surges to 150p a litre (Daily Telegraph, Louis Ashworth and Tom Rees) shows that drivers are going to feel more pain in their wallets as the higher oil prices stoked by Russia’s invasion of Ukraine filter through to the pumps on forecourts.
Then in Primark sales pick up but owner says it is increasing food prices (The Guardian, Mark Sweney) we see that the owner of Primark, Associated British Foods, said that group profits should exceed pre-Covid levels quite considerably in the first half of the year. However, sales at Primark are expected to fall 9% short of levels reached in 2019. It said that it would – surprise, surprise – pass on higher energy, raw materials and supply chains costs to the end consumer by implementing price rises. * SO WHAT? * It’s almost getting boring as I’m saying this so often now
but prices continue to rise and consumers face ever-tighter pressures on their finances. I think that central banks could potentially dither on raising interest rates to wait and see what happens as the Ukraine crisis continues to develop but prices continue to rise in the meantime. They may hesitate, thinking that consumers will rein in spending all on their own as people get increasingly nervous about Russia, but this could damage household finances even more IMO.
There is some potentially good news in First-time buyers get £27,000 boost as Bank relaxes mortgage rules (Daily Telegraph, Rachel Mortimer) as the Bank of England announced plans to scrap its mortgage affordability test, making it easier to borrow money. Current rules were implemented in response to the financial crisis to protect borrowers. To give you an illustration, customers can generally borrow up to five times their income. If the average first-time buyer mortgage is £172,000, scrapping the rules will effectively add £27,520 to the buyer’s budget – pretty considerable. * SO WHAT? * Although this sounds good in theory, I do wonder whether buying right now is a good option for the first-time buyer. Yes, mortgages are still historically cheap but house prices are still very high. Mind you, when you consider the impact of all of the other cost pressures on household budgets at the moment you would have thought that it is going to be harder to scrape together a deposit anyway.
Zoom gets a reality check and Klarna spends on expansion…
Zoom’s sales growth slows as retreat from pandemic high continues (Wall Street Journal, Denny Jacob) checks in with former lockdown superstar performer Zoom Video Communications which unveiled faltering sales growth in Q4 in further evidence that the growth glory days are over. * SO WHAT? * It was never going to last and it seems that, good though it is, Zoom will continue to face increasing pressure from Microsoft’s Teams (which is growing well)
and now Meta Platforms, which wants to create remote collaboration workspaces in the metaverse. Will Zoom be able to dabble there as well??
Then in Klarna counts cost of expansion and payment defaults (The Times, Patrick Hosking) we see that net losses at the BNPL player quintupled last year as it ploughed money into expansion and experienced more customer defaults. Still, it had won 46m new customers in 45 countries. * SO WHAT? * This sounds good for the company on the one hand, but I do think that headwinds are coming in the form of regulators cracking down on this area. The need to clamp down on this kind of credit will become more acute as household budgets continue to tighten.
…in other news…
Who knew that a vacuum cleaner could be such a source of pleasure?? Have a look at Dad finds new way to enjoy himself with a vacuum cleaner (Metro). Don’t worry – this is safe for work 🤣.
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/b||Oil (Brent) p/b||Gold Per t/oz||£/$||€/$||$/¥||£/€||$/₿|
(markets with an * are at yesterday’s close, ** are at today’s close)