December 5, 2023

Russia-Ukraine standoff could hurt US economy – JPMorgan

Rising energy prices and other shockwaves from the Russia-Ukraine crisis could hurt the stock market and hinder US economic recovery, JPMorgan has warned.

An energy price shock amidst an aggressive central bank pivot focused on inflation could further dampen investor sentiment and growth outlook,” its strategists said on Tuesday in an update to clients cited by CNN.

Brent crude, the world benchmark, shot to a seven-year high of $99.50 a barrel on Tuesday morning before retreating to just over $96 on Wednesday.

In the update, JPMorgan said some large multinational companies gained a significant chunk of their income from Russia and Ukraine. On Monday, the bank published a list of those that might see their sales dwindle as a result of the standoff. Among them are Philip Morris International (8% of sales), PepsiCo (4.4%) and McDonald’s (4.2%). It said that, overall, US companies had low direct exposure to the affected markets, however.

Ukraine crisis spurs demand for world’s oldest asset READ MORE: Ukraine crisis spurs demand for world’s oldest asset

“Indirect risks are potentially more substantial, which could include slower global growth and consumer spending due to higher oil and food prices, negative second-order effects through Europe, supply chain distortions, credit and asset writedowns, and cybersecurity risks,” the bank said.

The biggest risk for stocks, according to JPMorgan, is the fact that central banks are switching into inflation-fighting mode. It added that overly restrictive monetary policy could result in an outright policy error.

The US Federal Reserve is expected to raise interest rates next month in an attempt to curb inflation, which surged to 7.5% in January compared with a year earlier, marking the biggest increase in four decades. Federal Reserve Governor Michelle Bowman said on Monday she would be open to lifting interest rates by more than the traditional quarter-point at the central bank’s next meeting in March.

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China to benefit from anti-Russian sanctions — analyst

A wider array of sanctions against Russia are projected to deepen non-dollar denominated trade relations between Russia and China, according to former US trade negotiator and World Bank official with China and Russia experience, Harry Broadman.

“The problem with sanctions, especially involving an oil producer, which is what Russia is, will be leakage in the system,” Broadman said as quoted by Reuters.

“China may say, ‘We’re going to buy oil on the open market and if it’s Russian oil, so be it.’”

Since lesser punitive measures were introduced in 2014 after the reunification of the Crimea peninsula with Russia, China has reportedly emerged as its biggest export destination.

Washington and Western nations are poised to impose a wider range of economic penalties against Russia if Moscow escalates the current conflict in the breakaway republics of Donetsk and Lugansk. The Kremlin recognized the independence of both earlier this week.

Russia’s recognition of Donbass republics – actions, reactions and sanctions READ MORE: Russia’s recognition of Donbass republics – actions, reactions and sanctions

By the follow-up decree, Putin ordered the Russian military to “secure the peace” in the newly recognized republics, which were formerly considered part of Ukraine.

The recognition prompted the White House to unleash the “first tranche” of new sanctions against Russia. On Tuesday, US President Joe Biden signed an executive order that is supposed to target “Russia’s elite and family members.” Biden also claimed the Nord Stream 2 pipeline project “will not move forward,” and that the sanctions would help “cut off Russia’s government from Western financing” by banning trade in its sovereign debt.

Under the executive order, any institution in the Russian financial services sector is a target for further sanctions, US officials claimed, saying that over 80% of Russia’s daily foreign exchange transactions and half its trade are settled in US dollars. Biden pledged to “take robust action to make sure the pain of our sanctions is targeted at the Russian economy, not ours.”

Ruble rumbles, Russian market tumbles as Moscow recognizes Donbass READ MORE: Ruble rumbles, Russian market tumbles as Moscow recognizes Donbass

However, several experts say that cutting the $1.5 trillion economy out of global commerce is not an easy task since Russia is among the world’s top exporters of oil, natural gas, copper, aluminum, palladium and other vital commodities.

Biden’s announcements sent oil prices to highs not seen since 2014.

Russia accounted for nearly 2% of global trade in 2020, down from 2.8% in 2013, according to World Bank data. The country’s 2020 GDP was ranked 11th globally, between Brazil and South Korea.

According to the World Bank’s World International Trade Solution database, Russia’s dependence on trade has declined over the past 20 years. Meanwhile, its export destinations have also changed. The Netherlands was the top export destination a decade ago, due to oil trade, but it has been replaced by China. Germany and Britain’s purchases from Russia have held largely steady, while Belarus’ imports have been growing.

China remains Russia’s number one supplier of imports, with mobile phones, computers, telecommunications gear, toys, textiles, clothing, and electronics parts among top categories. Its share of Russian imports has grown since 2014, while those from Germany have dropped markedly.

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Russia-Ukraine crisis threatens global food supply

Escalating tensions between major global food suppliers Russia and Ukraine are likely to force wheat, corn, and sunflower oil buyers to seek alternative shipments, Reuters reported on Tuesday, citing analysts and traders. The disruption could drive up world food prices which are already near multi-year highs, experts warn.

The two countries reportedly account for around 29% of global wheat exports, 19% of world corn supplies, and 80% of world sunflower oil exports. Traders are worried that any military engagement could impact crop movement and could force importers to replace supplies from the region.

“Disruptions in supplies from the Black Sea region will impact overall global availability,” Phin Ziebell, agribusiness economist at National Australia Bank, told Reuters. “Buyers in the Middle East and Africa will be seeking alternative sources.”

Refinitiv shipping data showed that around 70% of Russia’s wheat exports went to buyers in the Middle East and Africa in 2021.

Traders say some buyers have already diverted vessels to other suppliers over concerns that any outbreak of war would lead to lengthy loading delays.

World food prices edging to all-time high READ MORE: World food prices edging to all-time high

“Ships are avoiding entering the Black Sea because of the war risk,” a Singapore-based trader said, adding that “Supply disruptions are already taking place.”

Analysts warned that a lack of supplies from the Black Sea region could lift demand for the bread ingredient from the United States and Canada.

World food prices have been hovering at their highest level in a decade, led by strong demand for wheat and dairy products.

On Tuesday, Chicago wheat futures surged more than 2%, and corn hit a seven-month high, with soybeans also on the rise. All three key food and feed ingredients have rallied around 40% from 2021 lows, lifted by declining production and robust demand.

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EU will soon pay double for gas – Medvedev

Europeans will soon have to pay €2,000 ($2,200) per thousand cubic meters of natural gas, former Russian president and current deputy chairman of the Security Council Dmitry Medvedev tweeted on Tuesday. The warning comes after Germany ordered a halt to Nord Stream 2 gas pipeline certification.

German Chancellor Olaf Scholz ordered to stop the certification of the Nord Stream 2 gas pipeline. Well, welcome to the new world, in which Europeans will soon pay €2,000 per thousand cubic meters of gas!” Medvedev wrote in a half-ironic Twitter post.

Earlier on Tuesday, Chancellor Scholz said that the German government was stopping the months-long certification process of the Russia-backed Nord Stream 2 pipeline project in light of the current standoff between Russia and Ukraine over the Donbass regions.

Late on Monday, Russia officially recognized the Donetsk and Lugansk People’s Republics of the breakaway region, sparking criticism from Western countries and claims that Russia is attempting to unlawfully invade Ukraine.

Chancellor Scholz said he had asked the German economy ministry to make sure the pipeline’s certification could not take place at the moment.

Europe has next to no gas left – Gazprom READ MORE: Europe has next to no gas left – Gazprom

That sounds technical, but it is the necessary administrative step so there can be no certification of the pipeline and without this certification, Nord Stream 2 cannot begin operating,” the Chancellor stated.

The 12-billion-dollar pipeline, which is majority-owned by Russia’s state energy giant Gazprom is capable of transporting 55 billion cubic meters of natural gas annually from Russia to Germany. The pipeline could have been the answer to Europe’s current energy crisis and help refill the continent’s gas storage facilities, which had less than 5% of gas left in them last week.

However, while having been completed in August last year, the pipeline has since hit the wall of European bureaucracy, and has not delivered a single cubic meter yet pending certification. The US and Ukraine, as well as several other Eastern European states, have been voicing protests against the pipeline’s launch, arguing that it would allow Moscow to exert political leverage over Europe. Up until now, Germany had repeatedly insisted on following through with the project.

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EU may ban mining & trade with Donbass – media

The European Union is preparing a list of sanctions following Moscow’s move to recognize the Donbass republics and the deployment of Russia’s peacekeeping troops to the region. The penalties will target Russia and the breakaway regions.

According to Bloomberg, the measures may include a ban on mining in the Donetsk and Lugansk republics, as well as the prohibition of trade with them. A limited list of individuals and legal entities may also be subject to EU sanctions, the news outlet reported, citing an EU diplomat.

Late on Monday, President Vladimir Putin announced Russia’s recognition of the Donetsk and Lugansk People’s Republics, which have been fighting for independence from Ukraine since 2014.

Treaties of friendship, cooperation and mutual assistance were signed between the republics’ leaders and Moscow on Tuesday. Putin instructed the Russian Foreign Ministry to establish diplomatic relations with the two regions, and the Russian Defense Ministry to ensure peace on their territories, effectively ordering a deployment of Russian troops to the area.

Global stocks sink on fears of full-blown conflict between Russia, Ukraine READ MORE: Global stocks sink on fears of full-blown conflict between Russia, Ukraine

Putin’s move predictably caused a negative reaction among NATO countries and their partners, seen by them as a violation of international law. Western states had previously threatened Moscow with sanctions if Russia invaded Ukraine. Following Donbass’ recognition, the EU Parliament’s largest grouping – the European People’s Party (EPP) – called on the bloc to immediately follow through on this threat, introducing new anti-Russian sanctions in order “to progressively lock Russia out of the European economy, without compromise.

The recognition of the two separatist territories in Ukraine is a blatant violation of international law, the territorial integrity of Ukraine and the Minsk agreements… The EU’s reaction must be immediate. A new sanctions package must be adopted,”  declared Manfred Weber, chairman of the EPP Group.

EU High Representative Josep Borrell said the first batch of anti-Russian sanctions will be officially formulated at a meeting of EU foreign ministers on Tuesday afternoon. Borrell noted, however, that he could not yet describe what was happening in Donbass as a “full-scale invasion.”

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Global stocks sink on fears of full-blown conflict between Russia, Ukraine

Global stock markets tumbled on Tuesday on concerns of a possible military conflict between Russia and Ukraine, after President Vladimir Putin announced that Moscow would “immediately” recognize the two republics in the breakaway Donbass region and send a military peacekeeping force to the area.

European shares hit a seven-month low, with Germany’s DAX and the CAC 40 in Paris sliding around 2%. The benchmark index of Britain’s leading companies, the FTSE 100, fell by 1.5% in early trading in London.

The plunge in Europe followed a shares nosedive in Asia overnight, with Tokyo’s Nikkei 225 index dropping 1.7% and the Hang Seng in Hong Kong sinking 2.8% in the biggest daily loss in five months.

During premarket trading in the US, the Dow Jones Industrial Average futures lost nearly 500 points, or 1.4%. SP 500 futures slid 1.74%, and the Nasdaq futures were off by 2.6%. American stock markets were closed on Monday due to the President’s Day holiday.

Putin signs ‘immediate’ recognition of Donbass regions READ MORE: Putin signs ‘immediate’ recognition of Donbass regions

In currency markets, the Japanese yen rose as much as 0.2% in Asia to a nearly three-week high of 114.50 per dollar, before paring its gains. The Swiss franc, another safe-haven, hit a one-month high overnight. The euro declined 0.1% to a one-week low of $1.1296, while the US dollar index stood at 96.083.

The prospect of economic sanctions against Russia has also spooked investors, with the pan-European STOXX 600 index plummeting 1.7% on Tuesday, entering its fourth straight session of losses. The benchmark has shed nearly 10% from its all-time high in early January.

“Financial market participants now wait for a response from the United States and Europe,” said analysts at Commonwealth Bank of Australia.

Washington and European capitals have already threatened tough sanctions against Moscow in response, with US President Joe Biden signing an executive order that prohibits Americans from investing, financing or trading in the Donetsk and Lugansk People’s Republics.

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Russian markets down amid escalating tensions in eastern Ukraine

Russia’s financial markets and the ruble crashed on Monday on news of a military escalation on the Russian-Ukrainian border and the worsening standoff along the contact line in the breakaway Donbass region in Ukraine.

The Russian military has reported that its troops opened fire on a “Ukrainian sabotage and reconnaissance group” that attempted to cross into the country, killing five servicemen.

Earlier, officials in the self-declared breakaway republic of Donetsk reportedly called on Moscow to send urgent help amid a worsening standoff across the contact line.

The dollar-denominated RTS index of leading Russian stocks nosedived 10% while the ruble-based MOEX benchmark slid 7.8% to 3,129 points.

The national currency followed a similar trajectory, falling over 1% to trade above 79 rubles against the dollar and 90 against the euro.

Donbass rebels make urgent appeal to Russia READ MORE: Donbass rebels make urgent appeal to Russia

The sell-off wiped out earlier Monday gains that had been chalked up to the announcement of a potential Russia-US meeting over the Ukraine crisis. French President Emmanuel Macron said on Sunday night that Russian President Vladimir Putin and his US counterpart, Joe Biden, have both agreed in principle to hold a meeting to halt the escalation of the conflict.

On Monday, officials in Donetsk declared a state of emergency, saying that their pump stations had stopped working amid the shelling and that they were unable to distribute drinking water. On Friday, the rebel leaders of the self-declared People’s Republics of Donetsk and Lugansk announced they had begun evacuating residents to Russia as a result of the deteriorating security situation, and ordered the mobilization of all able-bodied men to be ready to fight in a potential conflict.

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New global LNG leader could emerge this year

The US is on course to become the globe’s largest exporter of liquefied natural gas (LNG) in 2022, UK-based energy major Shell said in its annual LNG Market Outlook.

LNG exports grew in 2021 despite a number of unexpected outages that dented LNG available for delivery. The US led export growth with a year-on-year increase of 24 million tons and is expected to become the world’s largest LNG exporter in 2022,” Shell said in the report published on Monday.

At the end of 2021, the US ranked only third in global LNG exports, after Australia and Qatar.

According to Shell, America has two countries to thank for its LNG export growth, as China and South Korea both saw LNG demand soar last year. In its push toward switching to cleaner energy sources, Beijing increased its import of LNG by 12 million tons (to 79 million), bypassing Japan and becoming the largest importer of LNG in the world.

Europe is running out of space for LNG READ MORE: Europe is running out of space for LNG

During 2021 Chinese LNG buyers signed long-term contracts for more than 20 million tons a year, signaling an ongoing role for LNG in coal-to-gas switching in powering key sectors and helping to reach its ambition to be carbon neutral by 2060,” the report stated.

LNG is also increasing its role as a backup energy carrier in the event of power outages. For instance, Brazil tripled its imports of LNG last year amid persistent droughts that led to a decrease in electricity generation at hydroelectric power plants.

Overall, Shell paints a bright future for LNG, stating that “global LNG demand is expected to cross 700 million tons a year by 2040” – 90% up from 2021 demand. Asia is expected to emerge as the main consumer as “LNG replaces higher-emissions energy sources, helping to tackle concerns over air quality and to help progress towards carbon emissions targets.”

“As countries develop lower-carbon energy systems and pursue net-zero emissions goals, focusing on cleaner forms of gas and decarbonisation measures will help LNG to remain a reliable and flexible energy source for decades to come,” Wael Sawan, head of Shell’s renewables department, said in the report.

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Ukraine crisis spurs demand for world’s oldest asset

The price of gold has risen to a nearly eight-month high of $1,902.20 per ounce, driven by safe-haven demand from nervous investors amid heightened tensions between Russia and the West over Ukraine.

The precious metal is set for a third straight weekly gain, which is its longest run this year. The prices fell to $1,897 per ounce later on Monday on the news of an expected meeting between Russian and US presidents this week to halt the escalation of tensions in Ukraine.

Data from Refinitiv Lipper shows investors put money into precious-metal mutual- and exchange-traded funds for the fifth consecutive week through Wednesday. That marks the longest streak since early August 2020, when funds recorded net inflows for 20 consecutive weeks.

“Investors are looking for a geopolitical hedge,” co-chief investment strategist at John Hancock Investment Management Matt Miskin told the Wall Street Journal. “The stars are aligning in essence for a gold breakout.”

According to Miskin, further increases in tensions could send gold above its August 2020 record close of $2,051.50 within months.

Biden and Putin accept Macron’s proposal READ MORE: Biden and Putin accept Macron’s proposal

Bank of America analysts have predicted the potential for new highs, saying in a recent note that investors should consider buying more gold if prices break out of a range between $1,860 and $1,880.

Citigroup analysts have also upgraded their near-term price forecast to $1,950 an ounce from $1,825, citing the geopolitical tensions. However, the bank’s outlook also contains a target of $1,750 for a period of 6 to 12 months, as “higher real yields and stronger equities can weigh on bullion prices again.”

The analysts say the longer-term outlook for the precious metal is more challenging, as the Federal Reserve is preparing to raise interest rates.

“The short-term bid for gold driven by Black Sea military tensions, a spike in risky asset volatility, and inflation hedge demand will need to grapple with an increasingly hawkish Fed and higher policy rates come March,” Citi’s head of commodities research in the Americas, Aakash Doshi, wrote in a research note, seen by Bloomberg.

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Billionaire wants McDonald’s pigs to travel to slaughterhouse in comfort

McDonald’s should dump pork suppliers that crate pregnant pigs, billionaire investor Carl Icahn told the Wall Street Journal earlier this month. Icahn, who recently said he “feels really emotional” about animals, considers the practice cruel.

According to the investor, McDonald’s failed to fulfill the promise it made a decade ago to stop buying pork from suppliers that use gestation crates – special enclosures in which pregnant pigs are kept for much of their lives so they can’t move.

The billionaire owns a mere 200 shares in the fast food giant, equivalent to a roughly $25,000 stake in the $187 billion company. However, it didn’t stop him from nominating two new candidates for McDonald’s board of directors to support his case.

Mr. Icahn’s stated focus in making this nomination relates to a narrow issue regarding the company’s pork commitment,” McDonald’s said in a statement on Sunday.

McDonald’s adds NFTs to its virtual menu READ MORE: McDonald’s adds NFTs to its virtual menu

The company, which uses pork for its bacon cheeseburgers and McRib sandwiches, argued that some progress regarding pork suppliers has already been made. It vowed to source 85-90% of its US pork from pigs not housed in gestation crates by the end of the year and switch entirely to ‘crate-free’ pork by the end of 2024.

In the statement, McDonald’s acknowledged Icahn’s concern regarding pig treatment, but wondered why he failed to raise the question within his own pork and poultry supplying firm, Viskase.

Mr. Icahn’s ownership provides him with unique exposure to the industry-wide challenges and opportunities in migrating away from gestation crates. Thus, it’s noteworthy that Mr. Icahn has not publicly called on Viskase to adopt commitments similar to those of McDonald’s 2012 commitment,” the fast food giant stated.

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