Archives for February 2022

Brent crude oil, the global benchmark, rose as much as 6 percent to more than $100 per barrel on Thursday after Russia invaded Ukraine and could climb further as Russia reacts to sanctions from the United States and Europe, before moderating somewhat. Russia is a major exporter of energy to Europe.

“Potentially, Russia could retaliate by limiting oil exports,” Patrick De Haan, head of petroleum analysis at GasBuddy, said on Thursday. Prices at the pump are likely to reflect repercussions from the conflict almost immediately, he said.

Some economists have noted an uncomfortable precedent when it comes to a gas shock.

Rising energy prices in the 1970s helped exacerbate inflation, causing rapid price increases to become a lasting feature of the economy, one that faded only after a painful response from the Fed. The central bank pushed interest rates — and unemployment — to double digits to bring price increases to heel during what is now known as the Great Inflation.

That episode happened after years of quick price increases that the Fed had proved slow to tamp down. This time, the central bank is gearing up to pull back support promptly.

The Fed is expected to initiate a series of rate increases in March, policy moves that should slow down lending and spending, which could translate into weaker hiring, more subdued economic growth and more modest price gains.

“The Ukrainian situation does not alter, likely, the fundamental conclusion that it’s time to change monetary policy,” said Julia Coronado, founder of MacroPolicy Perspectives. “They’re not going to just shelve all the interest rate increases because there is a war in Ukraine.”

Christopher Waller, a Fed governor, said during a speech on Thursday evening that the conflict could contribute to uncertainty, but that for now, the Fed should promptly pull back its support for the economy to try to control “alarmingly” high inflation.

Article source: https://www.nytimes.com/2022/02/25/business/economy/inflation-pce-index.html

In a survey conducted this month for The New York Times by the online research firm Momentive, however, only 16 percent of respondents said they had more in savings than before the pandemic, and 50 percent said they had less. Among lower-income households, just 9 percent said they had more in savings, and 64 percent said they had less.

The government measures the total savings of all households, which can be skewed by a relative handful of rich people. And it uses a broader definition of “saving” than most laypeople probably do — paying down debt, for example, is considered “saving” in official government statistics.

But those factors can’t fully explain the disconnect. According to anonymous banking records reviewed by researchers at the JPMorgan Chase Institute, for example, median checking account balances remained significantly above their prepandemic level at the end of December, though they have fallen since their peak last spring. And while high-income households had far more money in their accounts on average, low-income households had experienced a bigger jump in savings on a percentage basis.

“We’re still seeing this picture that cash balances are still elevated in general, and they’re elevated more so for low-income families,” said Fiona Greig, co-president of the institute.

Dr. Greig said it was possible that balances had shrunk further since December, when monthly child tax credit payments ended. Brianna Richardson, a research scientist at Momentive, said it was also possible that survey respondents were misremembering how much money they had before the pandemic, perhaps because their savings grew so much earlier in the crisis. Inflation could also be affecting people’s assessments, because the same dollar amount in savings won’t go as far as prices rise.

Article source: https://www.nytimes.com/2022/02/25/business/economy/economy-savings-rate.html

Still, sanctions experts said that SWIFT was often overhyped as a tool and that cutting access could actually backfire by forcing Russia to find alternate ways to participate in the global economy, including forging stronger ties with China or developing a digital currency.

Emily Kilcrease, a senior fellow at the Center for a New American Security, argued that such an action could accelerate Russia’s efforts to expand the use of its own financial messaging service and drive it closer to China.

“There’s also this longer term question about whether de-SWIFTing in and of itself is just creating a lot of bad incentives for Russia,” Ms. Kilcrease said.

Michael Parker, counsel at the law firm Ferrari Associates, suggested that blocking Russia from SWIFT would probably open the door to other workarounds, including finding alternative communications systems. A more effective first step, he said, would be to impose the type of bank sanctions Mr. Biden announced on Thursday.

“To actually cut Russia off from the U.S. banking system or the global banking system, the Russian banks would have to be sanctioned. And that’s what they did,” he said. “At the end of the day, this is a financial tool — hitting their major banks is about as far as we probably could reasonably go as far as a first line of sanctioning.”

Emily Flitter contributed reporting.

Article source: https://www.nytimes.com/2022/02/24/business/russia-swift-financial-system.html

Still, sanctions experts said that SWIFT was often overhyped as a tool and that cutting access could actually backfire by forcing Russia to find alternate ways to participate in the global economy, including forging stronger ties with China or developing a digital currency.

Emily Kilcrease, a senior fellow at the Center for a New American Security, argued that such an action could accelerate Russia’s efforts to expand the use of its own financial messaging service and drive it closer to China.

“There’s also this longer term question about whether de-SWIFTing in and of itself is just creating a lot of bad incentives for Russia,” Ms. Kilcrease said.

Michael Parker, counsel at the law firm Ferrari Associates, suggested that blocking Russia from SWIFT would probably open the door to other workarounds, including finding alternative communications systems. A more effective first step, he said, would be to impose the type of bank sanctions Mr. Biden announced on Thursday.

“To actually cut Russia off from the U.S. banking system or the global banking system, the Russian banks would have to be sanctioned. And that’s what they did,” he said. “At the end of the day, this is a financial tool — hitting their major banks is about as far as we probably could reasonably go as far as a first line of sanctioning.”

Emily Flitter contributed reporting.

Article source: https://www.nytimes.com/2022/02/24/business/russia-swift-financial-system.html

“That’s really going to be the test: Does Fortress Russia hold up when you have assets that may be frozen overseas?” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.

For now, U.S. and European officials are not ready to cut off all Russian banks from Swift, the Belgian money transfer system used by more than 11,000 financial institutions worldwide. But a senior Biden administration official told reporters on Thursday that such an action was not off the table. In Europe, governments differ on whether to untether Russia from Swift.

U.S. officials for now do not plan big disruptions to Russia’s energy exports, which are the pillar of the country’s economy. Europe relies on the products, and world leaders do not want to drive oil and gas prices higher, though Germany did halt the Nord Stream 2 gas pipeline project this week.

European Union leaders met in Brussels on Thursday evening and pored over the details of proposed sanctions, which they insisted would deliver a heavy blow to the Russian economy.

But documents seen by The New York Times indicated that the bloc, which has close financial ties to Russia and shares borders with Ukraine, would probably defer several difficult decisions, despite pleas from Poland, the Netherlands and the Baltic States to take a hard-line approach.

“Enough of this cheap talking,” said Prime Minister Mateusz Morawiecki of Poland, which has already received Ukrainians fleeing the war. He added: “We are buying as Europe, as the European Union, lots of Russian gas, lots of Russian oil. And President Putin is taking the money from us, Europeans. And he’s turning this into aggression.”

Reporting was contributed by Matina Stevis-Gridneff from Brussels, Alan Rappeport from Washington, Motoko Rich from Tokyo and Yan Zhuang from Melbourne, Australia.

Article source: https://www.nytimes.com/2022/02/24/us/politics/biden-sanctions-russia-ukraine.html

Combined with the sanctions announced Thursday, Mr. Biden said, these measures “will so weaken” Russia that it will give Mr. Putin “some difficult decisions.”

Mr. Putin has been pushing for more than a decade for Western recognition “of a Russian sphere of influence in the post-Soviet states,” and he may not stop unless he is forced to do so, Ms. Stent said in an online Council on Foreign Affairs conference on Wednesday.

In anticipation of the new sanctions, bank stocks fell faster than the markets overall. Shares of European banks with the biggest Russian operations plunged: Raiffeisen of Austria fell 23 percent, while UniCredit of Italy fell 13.5 percent and Société Générale of France lost about 12 percent. In the United States, JPMorgan Chase fell about 2.8 percent and Citigroup slid 4 percent.

Energy stocks fell on Thursday but they have been a bright spot for investors who have owned them in 2022. With a gain of more than 19 percent, energy is the only sector in the SP 500 to be up for the year. Halliburton, Occidental Petroleum, Marathon Oil, Hess and Exxon Mobil are among the fossil fuel stocks that have gained more than 20 percent in 2022.

Investors seeking safety in the market storm flocked to the usual havens — Treasury bonds and gold.

“Treasuries provide protection in an environment like this,” said David Rosenberg, chief economist of his own firm, Rosenberg Research, in Toronto. “I think recession risks are rising, and there has never been a recession in modern history where long-term Treasuries didn’t make you money.”

Bond yields, which move in the opposite direction of prices, fell. The yield on the benchmark 10-year Treasury, which was as high as 2.045 percent on Feb. 15, fell to 1.96 percent on Thursday.

And gold, which was less than $1,770 an ounce in November, rose above $1,924 at one point in New York, before falling to $1,899. “Gold has always been one of the places you want to go in a crisis,” Mr. Rosenberg said.

Reporting was contributed by Anton Troianovski, Austin Ramzy, William P. Davis and Jason Karaian.

Article source: https://www.nytimes.com/2022/02/24/business/economy/stock-market-today.html