Friday, March 4, 2022

Weekly Commentary: Day Nine

On Day Two, it was pretty clear that Day One developments were history-changing. Here at Day Nine, there’s absolutely no doubt. Between Day Two and Day Nine, the situation has deteriorated beyond what anyone thought likely. The evil is more extreme; the courage and determination of the Ukrainians even more phenomenal. Myriad risks are of an extreme nature. We can only hope the current trajectory is not maintained through Day 16 and beyond.

March 4 – CNN: “Russia now seems prepared to ‘bombard cities into submission,’ one senior western intelligence official said on Friday, which could include a significant increase in the number of civilian casualties. ‘It’s a very crude approach,’ the official said. ‘The heavier weapons are not just heavier in the weight, they’re also heavier in terms of the damage that they can inflict. And they’re far less discriminant.’ Other officials have noticed a shift in Russian strategy from military targets to civilians, with more attacks becoming focused on population centers. ‘The days to come are likely to be worse, with more death, more suffering, and more destruction, as the Russian armed forces bring in heavier weaponry and continue their attacks across the country," NATO Secretary General Jens Stoltenberg said…”

March 3 – New York Times (Marc Santora and Mike Ives): “One week into their invasion of Ukraine, Russian forces are ramping up assaults on civilian areas, making strategic advances in the coastal south and beginning to lay siege to major cities. The invasion by President Vladimir V. Putin’s troops… kicked off Europe’s largest ground war since World War II. In the days since, parts of towns and cities along Ukraine’s eastern border with Russia have been reduced to rubble by Russian forces… Major cities, including the capital, Kyiv, have faced significant onslaughts… As the war moves to an increasingly brutal phase, Russian artillery and rocket fire have cut off electricity, water and heat to many communities. Reports are also multiplying of Russian strikes against hospitals, schools, apartment complexes and critical civilian infrastructure. And a humanitarian crisis looms: More than a million people have already fled the country, according to the head of the United Nations refugee agency.”

March 3 – Reuters (Natalia Zinets, Pavel Polityuk, Alessandra Prentice): “Russian forces are trying to blockade the southeastern Ukrainian port city of Mariupol, knocking out power, water and heating supplies with bombardment that is preventing residents from fleeing, local authorities said… As Russia's invasion of Ukraine enters its second week, the port city is seeing some of the fiercest fighting with constant shelling for the past 24 hours, Mayor Vadym Boichenko said in a video broadcast. The city authorities likened the Russian onslaught to Nazi Germany's protracted deadly siege of the then-Soviet city of Leningrad during World War Two. ‘Mariupol remains under fire. Women, children and the elderly are suffering. We are being destroyed as a nation. This is genocide of the Ukrainian people,’ the city's council said…”

March 2 – Reuters (Pavel Polityuk, Natalia Zinets and Aleksandar Vasovic): “Ukraine's second biggest city, Kharkiv, suffered heavy bombardment on Wednesday as Russia's week-long invasion was denounced by the United Nations in a historic vote and dozens of countries referred Moscow to be probed for potential war crimes. The biggest attack on a European state since 1945 has caused over 870,000 people to flee, led to a barrage of economic measures against Russia, and stoked fears of wider conflict in the West unthought-of for decades.

March 4 – CNN: “Ukrainian authorities have released video from inside the control room at the Zaporizhzhia nuclear power station, which was taken over by Russian forces late Thursday. The video shows the inside of the control room as an announcement rings out on a PA system aimed at the Russian forces outside. Here is what the announcement said: ‘Stop shooting at a nuclear dangerous facility. Stop shooting immediately! You threaten the security of the whole world!’ ‘The work of the vital organs of the Zaporizhzhia station may be disrupted. It will be impossible for us to restore it.’ ‘You are endangering the security of the entire world. Attention! Stop shooting at a nuclear hazardous facility. Stop shooting at a nuclear hazardous facility!’ ‘Stop shooting at a nuclear hazardous facility! Attention! Stop it!’”

March 4 – Daily Mail (Chris Pleasance, Chris Jewers, Harriet Alexander and Kaya Terry): “Boris Johnson has accused Russia of ‘threatening the security of the whole of Europe’ after Putin's troops attacked the continent's largest nuclear power plant overnight, sparking a fire that raged for hours before emergency crews were eventually allowed to extinguish it as Russian soldiers seized the complex. Mr. Johnson condemned the attack as ‘reckless’ after a phone call with President Volodymyr Zelensky who branded it ‘nuclear terrorism’. Jens Stoltenberg, who is in Brussels today to meet with NATO allies, denounced attacks on all civilian infrastructure and said the fire at the plant underlined the need to end Putin's war as soon as possible.”

Meanwhile, panic buying overwhelmed global commodities markets. The Bloomberg Commodities Index surged 13.0% to the high since 2014 - the “most stunning weekly surge in records that go back to when Nikita Khrushchev was in the Kremlin.” WTI Crude jumped $24.09, or 26.3%, to $115.58 (up 54% y-t-d). Palladium surged 27.1%, Nickel 18.7%, Iron Ore (DCE) 15.5%, Aluminum 14.6%, Zinc 11.9%, Copper 10.1%, and Tin 6.9%. In the precious metals, Golds rose 4.3%, Silver 5.9%, and Platinum 6.5%. Too much “money” chasing limited supplies.

March 4 – Bloomberg (Megan Durisin and James Poole): “This week will go down in wheat trading history. Chicago futures for the grain have soared 40% -- the most ever -- as Russia’s war in Ukraine upends global grain supplies. That puts prices at a 14-year high, and milling wheat in Paris reached an unprecedented 400 euros ($438 per ton). The war is stalling shipments from one of the world’s most vital breadbaskets. Ukraine and Russia together account for a quarter of global trade of the staple, used in everything from bread to couscous and noodles.”

It was an ominous week for the global food supply and its price. Wheat (May contract) surged 40.6%, increasing y-t-d gains to 57%. Corn jumped 15% (up 27% y-t-d), and Soybeans rose 5.4% (up 26%).

Representative David Scott (questioning Powell during Tuesday’s House Financial Services Committee hearing): “I want to sound the alarm here this morning, and I want you to listen to me and I want the nation to because I’m the chairman of our House Agriculture Committee - and I’m very worried about this turmoil over in Ukraine and Russia’s violent, illegal and criminal action that they are taking and the impact that this has on global trade and most importantly, our own food security. We could very well be on the verge of a hunger crisis all over this world… I want to ask you, Chairman Powell, the disruptions and rising prices from these commodities will destabilize global food markets and threaten our food stability and social stability. So, my question to you, Mr. Chairman Powell, to what extent could these developments create a financial stability risk here at home and abroad, and what must we do? We can go without a lot of things in this world, but the one thing we cannot go without is food. And when you have this much power on our food security for the world in the hands of these two countries warring at each other at this time, what can you do about it?”

Chair Powell: “Sir, your point is very well taken and I think… it’s shipping, it’s corn, it’s wheat, as you pointed out, it’s fertilizer, and we see that getting into food prices and into the food supply just in these early days after the sanctions have been put in place and the war less than two weeks old now. I really -- the Fed doesn’t really have the tools to address this.

During the hearings, Powell was queried on energy prices and a potential energy crisis, along with global supply chain issues. He was grilled on inflation. At least Powell asserted that the Fed had some control over inflation. “Hindsight says we should have moved earlier… We’re going to use our tools, and we’re going to get this done.”

Going back three decades to the Greenspan Fed, the almighty Federal Reserve seemingly had a solution for just about any problem. Wars, financial crises, economic downturns, terrorist attacks, and even a pandemic. Fed acted as boundless Superman to the rescue with ever lower rates and more powerful monetary inflation. And the bigger the crisis, the more aggressive the inflationary measures. At least for financial markets, crises were no longer something to be feared. Indeed, they were money-making opportunities. And this perception became ever more deeply embedded in financial asset and derivative prices – and Market Structure - at home and across the world.

Here at Day Nine, Everything Has Changed. The Fed and global central bank community have no solutions for the worst European military crisis since WWII. No solutions for spiking energy, food and materials prices. No solution for unfolding shortages of so many vital commodities. No solution for panic buying. No solution if China decides to use its hoard of dollars to procure additional supplies of commodities – at any price. No solution for a worsening global supply chain crisis. No solution for Russian bank insolvencies, collapsing securities values and illiquidity. None for the paralyzed Central Bank of the Russian Federation. No solution for a new “iron curtain.” No solution for the risk of a nuclear crisis (damaged energy facilities or warheads). No solution to the risk of war expanding to include the U.S. and NATO. There is today little central bankers can say or do to mitigate the myriad risks that have overwhelmed the markets and world.

European bank Credit default swap (CDS) prices surged this week to highs since 2020. UniCredit CDS jumped 14 to 111 bps, Deutsche Bank 14 to 81 bps, Credit Suisse 13 to 118 bps, and Societe Generale 12 to 69 bps. An index of European subordinated bank bond CDS surged a whopping 40 to 182 bps (began the year at 108), the largest weekly gain since April 2020.

It’s worth noting European markets rapidly approached dislocation during Tuesday’s session. Sovereign yields nosedived, with 10-year Italian yields collapsing 30 bps, Greek yields 21 bps, Portuguese yields 27 bps and Spanish yields 26 bps. For the week, German 10-year bund yields sank 30 bps, closing Friday at negative 0.07%. German (-10.1%), French (-10.2%), and Italian (-12.8%) equities indices all suffered double-digit declines for the week. Levered trades were surely coming unraveled.

February 28 – Bloomberg (Greg Ritchie and Garfield Reynold): “Money markets are showing the most stress since the early days of the pandemic, as traders race for dollars in the wake of toughened sanctions against Russia, prompting calls for help from central banks. The cost of converting both euro and yen payments into dollars using three-month cross-currency basis swaps hit the most since March 2020. The gap between future Libor and Federal Reserve rates, a key gauge of funding stress known as the FRA/OIS spread, also widened for one-month contracts by the most since March 2020.”

European Bank Stocks (STOXX 600) sank a brutal 16.0% this week, with Italian Banks collapsing 23.5%. U.S. Banks (BKX) were drilled 7.7%. JPMorgan sank 9.2%, Bank of America 9.0% and Citigroup 8.7%. The Broker/Dealer Index fell 6.7%. Morgan Stanley dropped 8.7%, and Goldman Sachs lost 5.8%. Citigroup CDS jumped 13 this week to 91 bps, the largest weekly gain since June 2020. Bank of America CDS rose 13 to 81 bps, the largest weekly rise since May 2020. JPMorgan CDS jumped 12 to 77 bps (biggest since June ’20). A Friday Bloomberg headline: “Banks Sit on Billions of LBO Financings as Demand for Debt Falls.”

Corporate debt was not immune. U.S. corporate Investment-Grade bond CDS jumped eight to 74 bps, and High-Yield CDS surged 33 to 359 bps (both biggest weekly gains since October ’20).

Contemporary finance is burdened by serious latent fragilities. In simple terms, it doesn’t work in reverse. The current financial structure is viable only so long as the Bubble is inflating – only while credit, leverage and speculative flows are expanding. In the event of serious de-risking and deleveraging, markets are prone to illiquidity, dislocation and panic. In Day Nine, Market Structure has Become a Critical Issue.

The entire financial universe is underpinned by expectations for liquid markets. Derivatives, in particular, operate on the assumption of liquid and continuous markets. This is despite the long history of markets demonstrating recurring bouts of illiquidity, panic and, on occasion, crashes. Derivatives players (and their computer algorithms) readily disregard market history. They focus instead on the relatively short-term history of central bankers doing “whatever it takes” - ensuring liquidity and backstopping market Bubbles.

At Day Nine, markets again indicate heightened illiquidity and dysfunction. It’s by now a well-worn dynamic – with stress not yet near the extremes of March 2020. What is different is the status of the Fed’s liquidity backstop. The global system is moving toward a major de-risking/deleveraging episode, just as the Fed is preparing to commence a tightening cycle. This is no environment for leverage. “Risk off” is attaining powerful momentum, with inflation already highly elevated and everything pointing to even more robust pricing pressures (global commodities, supply-chain issues, overheated labor markets, etc.).

The Fed was quick with QE when de-leveraging began to gain momentum in the summer of 2019. Successive dramatic policy measures – including announcements of ballooning QE – thwarted market collapse in March 2020. With the focus on runaway inflation, nothing indicates the Fed is ready to open the liquidity floodgate one more time. Risk is high that the Fed moves tardily, and with less firepower than markets will require to avert dislocation. Worse yet, if the Fed (and global central banks) orchestrate another major monetary inflation, does much of this liquidity bypass Financial Assets in favor of Commodities and other Hard Assets (only bolstering inflation dynamics)?

March 2 – Bloomberg (Rebecca Choong Wilkins and Alice Huang): “Credit stress in China’s property market is spilling over to some of the nation’s stronger developers. Chinese developers’ dollar bonds tumbled 4 to 8 cents on the dollar Wednesday…”

The last thing its faltering apartment Bubble needed was for China’s partner – “with no limits” – to instigate a horrific war, unleash global financial crisis and turn Abominable Global Pariah. This week was a real estate developer bloodbath. Evergrande yields jumped 218 bps to 94.24%, but that was the least of the worries. Country Garden, builder number one and former perceived rock-solid enterprise, saw its yields surge 436 bps to 15.66% (yields were at 3.25% in September). Sunac yields were up a full 19 percentage points this week to 57.71%; Lonfor 24 percentage points to 77.95%, and Kaisa 12 percentage points to 84.35%. I could go on and on. WSJ: “China’s top 100 developers’ monthly contracted sales volume fell for the eighth straight month in February, plunging 47% from a year earlier…”

March 2 – Reuters (Kevin Yao): “China will not join in sanctions on Russia that have been led by the West, the country's banking regulator said on Wednesday, adding that he believed the impact of the measures on China would be limited. China, which has refused to condemn Russia's invasion of Ukraine, has repeatedly criticised what it calls illegal and unilateral sanctions. ‘As far as financial sanctions are concerned, we do not approve of these, especially the unilaterally launched sanctions because they do not work well and have no legal grounds,’ Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told a news conference.”

While China’s banks appeared to move cautiously this week, we can safely assume China will backstop Russia financially and economically. Difficult to believe this will go over well with the U.S. and its allies. Beijing has made some catastrophic mistakes. Its bubble collapse is accelerating, and now it is in the thick of global strife and a new “iron curtain.” China’s $55 TN banking system is an accident in the making, and it’s worth noting that Chinese bank (and China sovereign!) CDS traded this week to the highs since March 2020. How long can the perception hold that Beijing has everything under control?

It made, a couple weeks back, a rather provocative headline: “One Serious Catalyst Away From A Megaquake.” At Day Nine, it has become reality. At least I've never witnessed a catalyst as potentially serious. Perhaps things won’t look as dire on Day 16. But here in the evening of Day Nine, it’s as if Worst Fears are all Coming to Fruition in Unison.

On its current trajectory, Russia appears determined to pulverize Ukraine. It’s shocking and horrendously disturbing. The U.S. and Europe will aggressively run sophisticated arms to help Ukrainians defend themselves. Do the Russians tolerate NATO’s wide-bodied transport aircraft operating at airstrips along the Ukraine border loaded with Javelins, Stingers, rocket launchers and other advanced weaponry to be trucked in to bolster Ukrainian defenses? How about if Ukrainian fighter pilots come flying in from NATO airspace? Might this evolve more into a proxy war? Will Putin be tempted to make good on his threats?

March 3 – Reuters: “The head of Russia's foreign intelligence agency said… it was wrong to speak of a new Cold War between Russia and the West because the situation was already ‘hot’. ‘Western politicians and commentators like to call what is happening a 'new cold war.' It seems that historical parallels are not entirely appropriate here,’ Sergei Naryshkin said… ‘If only because in the second half of the 20th century Russia fought with the West on the distant approaches, and now the war has come to the very borders of our Motherland. So for us it is definitely not 'cold', but quite ‘hot’.”

March 4 – Reuters (Peter Baker): “NATO will defend all its allies and territory against a Russian attack, U.S. Secretary of State Antony Blinken said…, as he arrived for a meeting of the alliance's foreign ministers in Brussels. ‘Ours is a defensive alliance. We seek no conflict. But if conflict comes to us we are ready for it and we will defend every inch of NATO territory,’ he told reporters, while condemning what he called Russian attacks on civilians in Ukraine.”

For the Week:

The S&P500 declined 1.3% (down 9.2% y-t-d), and the Dow fell 1.3% (down 7.5%). The Utilities surged 4.8% (down 2.2%). The Banks sank 7.7% (down 5.1%), and the Broker/Dealers slumped 6.7% (down 6.8%). The Transports rallied 1.2% (down 6.6%). The S&P 400 Midcaps fell 1.7% (down 8.0%), and the small cap Russell 2000 dropped 2.0% (down 10.9%). The Nasdaq100 slumped 2.5% (down 15.2%). The Semiconductors sank 5.6% (down 17.4%). The Biotechs lost 1.7% (down 11.3%). With bullion spiking $81, the HUI gold index surged 8.6% (up 17.7%).

Three-month Treasury bill rates ended the week at 0.305%. Two-year government yields dropped nine bps to 1.48% (up 75bps y-t-d). Five-year T-note yields sank 23 bps to 1.64% (up 38bps). Ten-year Treasury yields dropped 23 bps to 1.73% (up 22bps). Long bond yields fell 12 bps to 2.16% (up 25bps). Benchmark Fannie Mae MBS yields fell 16 bps to 2.76% (up 69bps).

Greek 10-year yields dropped 21 bps to 2.35% (up 103bps y-t-d). Ten-year Portuguese yields fell 26 bps to 0.84% (up 37bps). Italian 10-year yields sank 30 bps to 1.54% (up 37bps). Spain's 10-year yields fell 24 bps to 0.97% (up 40bps). German bund yields sank 30 bps to negative 0.07% (up 11bps). French yields dropped 27 bps to 0.43% (up 24bps). The French to German 10-year bond spread widened three to 50 bps. U.K. 10-year gilt yields sank 25 bps to 1.21% (up 24bps). U.K.'s FTSE equities index sank 6.7% (down 5.4% y-t-d).

Japan's Nikkei Equities Index declined 1.9% (down 9.7% y-t-d). Japanese 10-year "JGB" yields declined five bps to 0.16% (up 9bps y-t-d). France's CAC40 sank 10.2% (down 15.3%). The German DAX equities index fell 10.1% (down 17.6%). Spain's IBEX 35 equities index slumped 9.0% (down 11.4%). Italy's FTSE MIB index sank 12.8% (down 17.9%). EM equities were mixed. Brazil's Bovespa index rose 1.2% (up 9.2%), and Mexico's Bolsa gained 1.5% (unchanged). South Korea's Kospi index rallied 1.4% (down 8.9%). India's Sensex equities index dropped 2.7% (down 6.7%). China's Shanghai Exchange was little changed (down 5.3%). Turkey's Borsa Istanbul National 100 index recovered 2.0% (up 7.2%). Russia's MICEX equities index did not trade (down 34.8%).

Investment-grade bond funds saw outflows of $3.328 billion, and junk bond funds posted negative flows of $842 million (from Lipper).

Federal Reserve Credit last week declined $19.2bn to $8.866 TN. Over the past 129 weeks, Fed Credit expanded $5.140 TN, or 138%. Fed Credit inflated $6.056 Trillion, or 215%, over the past 486 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week gained $3.7bn to $3.453 TN. "Custody holdings" were down $91.4bn, or 2.6%, y-o-y.

Total money market fund assets jumped $52bn to $4.606 TN. Total money funds increased $242bn y-o-y, or 5.6%.

Total Commercial Paper increased $6.9bn to $1.027 TN. CP was down $72bn, or 6.5%, over the past year.

Freddie Mac 30-year fixed mortgage rates dropped 13 bps to 3.76% (up 74bps y-o-y). Fifteen-year rates fell 13 bps to 3.01% (up 67bps). Five-year hybrid ARM rates declined seven bps to 2.91% (up 18bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 16 bps to 4.09% (up 89bps).

Currency Watch:

For the week, the U.S. Dollar Index jumped 2.1% to 98.65 (up 3.1% y-t-d). For the week on the upside, the Australian dollar increased 2.0%, the New Zealand dollar 1.7%, the Brazilian real 1.7%, the Swiss franc 0.9%, and the Japanese yen 0.6%. On the downside, the Swedish krona declined 4.7%, the euro 3.0%, the Mexican peso 2.9%, the South African rand 1.5%, the Norwegian krone 1.4%, the British pound 1.3%, the South Korean won 1.0%, the Singapore dollar 0.5%, and the Canadian dollar 0.1%. The Chinese renminbi slipped 0.03% versus the dollar (up 0.58% y-t-d).

Commodities Watch:

March 4 – Bloomberg (Ari Natter, Jennifer Jacobs, Saleha Mohsin and Nick Wadhams): “The Biden administration is weighing a ban on U.S. imports of Russian crude oil as Congress races toward passing such a restriction to punish the Kremlin for its invasion of Ukraine. Conversations are taking place within the administration and with the U.S. oil and gas industry on the impact such a move would have on American consumers and the global supply, according to people familiar with the matter.”

March 3 – Bloomberg (Martin Ritchie and Stephen Stapczynski): “Commodities are on course for their most stunning weekly surge in records that go back to when Nikita Khrushchev was in the Kremlin. Bloomberg’s gauge of raw materials is closing in on the biggest weekly gain since at least 1960 as banks, importers and shippers steer clear of Russian exports…”

March 4 – Bloomberg (Jasmine Ng): “Commodities extended their massive rally as Russia’s invasion of Ukraine continues to roil global markets and fuel fears of supply crunches. Prices from crude and nickel to aluminum and wheat soared, as raw materials stage their most stunning weekly surge since 1974, during the days of the oil crisis. Russia’s growing isolation is choking off a major source of energy, metals and crops, sparking fears of prolonged shortages and accelerating global inflation. Traders, banks and shipowners are increasingly avoiding business with Russia because of the difficulty in securing payments…”

March 3 – Bloomberg (Tarso Veloso and Alfred Cang): “China is scooping up U.S. corn and soybeans as part of efforts to mitigate the risks to commodity supplies from Russia’s war in Ukraine and slower harvests in South America. Chinese buyers recently booked about 20 cargoes of American soybeans and about 10 shipments of corn, according to traders…”

February 28 – Bloomberg (Megan Durisin, Irina Anghel, and Archie Hunter): “After years of growing increasingly reliant on cheap and abundant wheat supplies from Russia and Ukraine, the world’s grains buyers are being forced to hunt elsewhere as flows from both countries dry up. Ukraine’s ports are closed, and while some grain is still leaving Russia for now, traders and shipping representatives said there were little or no new deals being signed because of the uncertainty around the conflict, potential new sanctions and surging costs for freight and insurance.”

March 3 – Reuters (Gus Trompiz and Nigel Hunt): “The threat to wheat supplies from Russia's invasion of Ukraine has been exacerbated by a shift in global stocks away from major exporters such as the United States and European Union… U.S. wheat futures rose to a 14-year high on Thursday as importers scrambled for supplies following the closure of ports in Ukraine and disruption to supplies from Russia. The two countries account for about 29% of global wheat exports. Wheat futures have risen by about 40% so far this year, driving up food prices and contributing to a broader surge in a global inflation… Stocks in major wheat exporters - the European Union, Russia, the United States, Canada, Ukraine, Argentina, Australia and Kazakhstan - are set to fall to a nine-year low of 57 million tonnes by the end of the 2021/22 season, International Grains Council (IGC) data shows.”

March 4 – Wall Street Journal (Mark Burton and Yvonne Yue Li): “Nickel futures jumped sharply in London to trade above $30,000 a ton for the first time since 2008 as surging prices created a short squeeze in an already tight market. Nickel rose as much as 13% to $30,295 a ton... The metal surged 19% this week for the biggest weekly jump since 2009. The latest spike comes as clients with short positions have been stopped out of the trades, a nickel trader involved in the transactions said. Clients such as industrial hedgers have been hit with large intraday margin calls as prices have surged this week on worries of supply disruptions from Russia, and they’re now being forced to close out their positions in an increasingly illiquid market…”

March 2 – Bloomberg (Eddie Spence): “Aluminum hit a record and nickel jumped to an 11-year high as traders brace for supply disruptions from Russia -- a major producer of both metals -- at a time when global stockpiles have already shrunk dramatically.”

The Bloomberg Commodities Index jumped 13.0% (up 28.1% y-t-d). Spot Gold rose 4.3% to $1,971 (up 7.7%). Silver gained 5.9% to $25.70 (up 10.3%). WTI crude jumped $24.09 to $115.68 (up 54%). Gasoline surged 29.9% (up 59%), and Natural Gas rose 12.2% (up 35%). Copper jumped 10.1% (up 11%). Wheat spiked 40.6% (up 57%), and Corn jumped 15.0% (up 27%). Bitcoin dipped $552, or 1.4%, this week to $38,929 (down 16.0%).

Russia/Ukraine Watch:

March 3 – Reuters (Emma Farge): “The United States warned Russia and Belarus at a U.N. arms control meeting… not to deploy nuclear arms in Moscow's neighbouring ally following the Russian invasion of Ukraine. ‘Any movement of Russian nuclear weapons into Belarus would be dangerously provocative and further destabilize the region. We call on Belarus to reject Russia's policies of nuclear threat and intimidation,’ U.S. envoy Aud-Frances McKernan told the Conference on Disarmament (CD)…”

March 4 – Reuters (Peter Baker): “NATO will defend all its allies and territory against a Russian attack, U.S. Secretary of State Antony Blinken said…, as he arrived for a meeting of the alliance's foreign ministers in Brussels. ‘Ours is a defensive alliance. We seek no conflict. But if conflict comes to us we are ready for it and we will defend every inch of NATO territory,’ he told reporters, while condemning what he called Russian attacks on civilians in Ukraine.”

February 27 – Financial Times (Henry Foy, Max Seddon and Demetri Sevastopulo): “Western capitals have long been anxious about Moscow’s military doctrine, which allows it to use nuclear weapons to end a conflict as part of its ‘escalate to de-escalate’ strategy. So when Russian president Vladimir Putin put strategic nuclear forces on high alert on Sunday, they took it seriously. Putin’s decision to prepare Russia’s nuclear weapons for increased launch readiness sparked immediate condemnation from the US and Nato that it had made the world ‘much more dangerous’. ‘This is not only an unnecessary step for him [Putin] to take but an escalatory one,’ said a senior US defence official. ‘Unnecessary because Russia has never been under threat by the west or by Nato and certainly wasn’t under any threat by Ukraine. And escalatory because it is clearly potentially putting at play forces that, if there’s a miscalculation, could make things much, much more dangerous.’”

March 2 – Wall Street Journal (Nancy A. Youssef and Bojan Pancevski): “Seven days into Russia’s invasion of Ukraine, the U.S. and its North Atlantic Treaty Organization allies are coming under increasing pressure to do more to help Ukraine, even as they face diminishing options for doing so. As Russia continues its push to capture urban areas, one of the more drastic options discussed publicly has been a no-fly zone, which would stop Russian aircraft from launching strikes over Ukraine, eliminating a key military tactic. But the idea has been dismissed by the U.S. and NATO countries. ‘That is in many ways for many people, the unspoken question. Why not just engage militarily? But that’s not something any NATO member is thinking of doing. And there’s a reason for that, which is in order to have a no-fly zone above Ukraine, in the current circumstances, you would have to take decisions to shoot down Russian jets,” British Prime Minister Boris Johnson said… ‘And that’s not something that any Western country is contemplating.’”

February 28 – Reuters (James Pearson and Jonathan Landay): “A cyberattack on a NATO member state could trigger Article 5, its collective defence clause, a NATO official said…, amid concerns that chaos in cyberspace around Russia's invasion of Ukraine could spill over into other territories. The military alliance has for years made clear that a serious cyberattack could trigger the clause, but such a scenario has so far been largely hypothetical. ‘Allies also recognise that the impact of significant malicious cumulative cyber activities might, in certain circumstances, be considered as an armed attack,’ the official told Reuters.”

February 28 – Reuters (Patricia Zengerle): “Human rights groups and Ukraine's ambassador to the United States… accused Russia of attacking Ukrainians with cluster bombs and vacuum bombs, weapons that have been condemned by a variety of international organizations. Amnesty International and Human Rights Watch both said that Russian forces appeared to have used widely banned cluster munitions, with Amnesty accusing them of attacking a preschool in northeastern Ukraine while civilians took shelter inside.”

March 1 – Reuters: “Belarus is deploying more forces on its border with Ukraine, state news agency Belta quoted Belarusian President Alexander Lukashenko as saying… ‘Those are well trained rapid deployment groups which are ready to stop any provocation and any military action against Belarus,’ Lukashenko said.”

March 1 – Wall Street Journal (Richard Milne): “Latvia’s president has called on the EU to seize its chance to stop being a ‘political midget’ and grant Ukraine candidate status to join the bloc. Egils Levits told the Financial Times that Russia’s invasion of Ukraine was a ‘moment in history’ akin to the fall of the Berlin Wall or the end of the second world war, where ‘the future is being formed for the next decade’.”

February 27 – Associated Press (Dasha Litvinova): “From Moscow to Siberia, Russian anti-war activists took to the streets again Sunday to protest Russia’s invasion of Ukraine, despite the arrests of hundreds of protesters each day by police. Demonstrators held pickets and marched in city centers, chanting ‘No to war!’ as President Vladimir Putin ordered Russian nuclear deterrent to be put on high alert, upping the ante in the Kremlin’s standoff with the West and stoking fears of a nuclear war.”

February 28 – Reuters (Mark Trevelyan): “The movement of jailed Russian opposition leader Alexei Navalny called… for a campaign of civil disobedience to protest against Russia's invasion of Ukraine. ‘Putin declared war on Ukraine and is trying to make everyone think that Ukraine was attacked by Russia, that is, by all of us. But that's not right,’ the Navalny team wrote… ‘We must show that we do not support the war. We call on Russians to show civil disobedience. Do not be silent.’”

March 1 – Reuters: “The West must not build military facilities in any countries of the former Soviet Union, Russian Foreign Minister Sergei Lavrov was quoted as saying…”

March 1 – Reuters (Joel Schectman, Christopher Bing and James Pearson): “A Ukrainian cyber guerrilla warfare group plans to launch digital sabotage attacks against critical Russian infrastructure such as railways and the electricity grid, to strike back at Moscow over its invasion, a hacker team coordinator told Reuters.”

U.S./Russia Watch:

February 28 – Associated Press (Nomaan Merchant and Vladimir Isachenkov): “For two decades, Vladimir Putin has struck rivals as reckless, impulsive. But his behavior in ordering an invasion of Ukraine — and now putting Russia's nuclear forces on high alert — has some in the West questioning whether the Russian president has become dangerously unstable. In recent days, Putin has rambled on television about Ukraine, repeated conspiracy theories about neo-Nazism and Western aggression, berated his own foreign intelligence chief on camera from the other side of a high-domed Kremlin hall where he sat alone. Now, with the West's sanctions threatening to cripple Russia's already hobbled economy, Putin has ordered the higher state of readiness for nuclear weapons, blaming the sanctions and what he called ‘aggressive statements against our country.’”

March 3 – Bloomberg (Daniel Moore): “The Energy Department is considering options to expand U.S. uranium supplies to nuclear reactors that rely on Russian imports for current operation and next-generation research, the DOE’s top science official told senators... The Russian invasion of Ukraine last week has made the agency’s uranium-development efforts ‘even more urgent,’ Geraldine Richmond, undersecretary for science and innovation, said…”

China/Russia Watch:

March 2 – Bloomberg: “Chinese President Xi Jinping has spent much of the past decade focused on stability. But as he lays the ground for a likely third term as leader, he’s facing more crises than ever, both at home and abroad. The economy is being dragged down to its weakest growth in more than three decades, barring 2020’s pandemic year. The housing market is in crisis, with mounting defaults. A crackdown on the country’s biggest technology companies has scared off investors. And now Russia’s invasion of Ukraine is forcing China to reassess its support for Vladimir Putin, while managing increasingly fraught ties with the U.S.”

March 2 – Washington Post (Christian Shepherd): “China's strategic partnership with Russia has the potential to be a lifeline for a Russian economy foundering under crippling Western sanctions, but Beijing appears to be holding back over practical constraints and fears of secondary sanctions on Chinese institutions. As Russia's largest trading partner and one of the few countries globally that has not condemned President Vladimir Putin's invasion of Ukraine, China is coming under close scrutiny from the United States and its allies for its ability to undermine the Western economic coercion used to press Moscow into a cease-fire. Ma Xue, an analyst at China Institutes of Contemporary International Relations (CICIR), wrote… the sanctions ‘provided Russia with an opportunity for cooperation with third parties and to find substitute markets to thereby evade or reduce the strength of sanctions.’”

March 3 – Reuters (Engen Tham and Julie Zhu): “Top Chinese banks are rushing to ensure they can maintain business ties with Russian clients without running afoul of a barrage of Western sanctions, people with knowledge of the matter told Reuters… While the Chinese banking regulator said this week the country would not join the West's sanctions on Russia, some of its banks have stopped issuing dollar-denominated letters of credit for purchases of physical commodities, sources have said. And now, executives at some leading Chinese banks are exploring alternative payment systems as well as the possibility of passing some of their business to small domestically focused peers to avoid getting caught in secondary sanctions…”

March 3 – Reuters (Samuel Shen and Andrew Galbraith): “The Moscow branch of a Chinese state bank has seen a surge in enquiries from Russian firms wanting to open new accounts, a person familiar with the matter said, as the country's businesses struggle with international sanctions after its invasion of Ukraine. ‘Over the past few days, 200-300 companies have approached us, wanting to open new accounts,’ the person, who works at the Moscow branch of a Chinese state bank… told Reuters.”

March 4 – Bloomberg: “The China-backed Asian Infrastructure Investment Bank halted all businesses with Russia and Belarus amid rising geopolitical tensions, a sign of Beijing’s cautious approach to financial support to Russia amid sanctions. The multilateral lender said… ‘all activities relating to Russia and Belarus are on hold and under review,’ as it strives to do their utmost to safeguard the financial integrity of the bank.”

March 4 – Associated Press (Zen Soo): “As the West condemns Russia, President Vladimir Putin has vocal supporters in China, where the ruling Communist Party tells its people they are fellow targets of U.S.-led harassment. ‘If Russia is destroyed, we will be next. This is for sure,’ said Wang Yongchun, a retiree in Beijing. ‘The United States wants to dominate the world.’ …‘Media outlets were told last week to post only pro-Russian content and to censor anti-Russian or pro-Western views, according to a copy of instructions posted on the social media account of the newspaper Beijing News.”

February 27 – New York Times (Li Yuan): “If President Vladimir V. Putin is looking for international support and approval for his invasion of Ukraine, he can turn to the Chinese internet. Its users have called him ‘Putin the Great,’ ‘the best legacy of the former Soviet Union’ and ‘the greatest strategist of this century.’ They have chastised Russians who protested against the war, saying they had been brainwashed by the United States. Mr. Putin’s speech on Thursday, which essentially portrayed the conflict as one waged against the West, won loud cheers on Chinese social media. Many people said they were moved to tears. ‘If I were Russian, Putin would be my faith, my light,’ wrote… a user of the Twitter-like platform Weibo.”

March 2 – Bloomberg: “Russia’s central bank and sovereign wealth fund probably own a combined $140 billion worth of Chinese bonds, assets that they may seek to access given global sanctions, estimates by Australia & New Zealand Banking Group show.”

Europe/Russia Watch:

February 27 – Financial Times (Erika Solomon): “In the space of 30 minutes, Olaf Scholz overturned decades of German foreign and defence policy. Speaking to the Bundestag in a special session on Sunday, the chancellor announced a massive €100bn fund to modernise the military. He also vowed that Germany would finally meet its Nato commitment to spend 2% of gross domestic product yearly on defence — up from the 1.5% currently spent that has long frustrated allies. The plans could mark a watershed moment for the way Europe’s largest economy engages with the world.”

Market Instability Watch:

March 1 – Wall Street Journal (By Patricia Kowsmann and Ian Talley): “Russia’s assault on Ukraine triggered a surge of calls for Western allies to completely sever Russia from the global financial system by disconnecting it from the Swift global financial messaging system. The European Union was set Tuesday to instruct the Swift financial network to delist seven banks, including Russia’s VTB Bank, Bank Rossiya and Bank Otkritie… The EU, U.S., U.K. and Canada had all agreed on Feb. 26 to block some Russian banks from the network, part of an enhanced package of measures that seeks to undermine Russia’s economy and finances.”

February 27 – Associated Press (Rana Foroohar): “Markets often react strongly to geopolitical events, but then later shrug them off. Not this time. Russia’s invasion of Ukraine is a key economic turning point that will have many lasting consequences. Among them will be a quickening of the shift to a bipolar global financial system — one based on the dollar, the other on the renminbi. The process of financial decoupling between Russia and the west has, of course, been going on for some time. Western banks reduced their exposure to Russian financial institutions by 80% following the country’s annexation of Crimea in 2014… The new and more aggressive sanctions announced by the US will take that decoupling much further. It will also make Russia much more dependent on China, which will use the US and EU sanctions as an opportunity to pick up excess Russian oil and gas on the cheap.”

March 3 – Bloomberg (Greg Ritchie): “Dealers and investors in Europe and the U.S. are rushing to stockpile the safest assets as collateral -- gumming up the financial plumbing of the biggest bond markets with echoes of disruptions wrought by the 2020 pandemic. As Russia’s invasion of Ukraine spurred a disruptive flight-to-quality, Treasury traders failed to follow through with their so-called repurchase agreements by the most in almost two years. On the other side of the Atlantic, U.K. market participants have been forced to use a safeguard repo facility repeatedly as liquidity in short-dated gilts dries up. Bund investors, meanwhile, have been paying highest premium since the eurozone sovereign debt crisis to own cash bonds over equivalent swaps.”

March 3 – Bloomberg (Edward Bolingbroke and Garfield Reynolds): “Key gauges of money-market risk increased after Ukraine said Russia had attacked Europe’s largest nuclear power plant. Interbank dollar rates jumped again relative to the overnight lending benchmark. The FRA/OIS spread -- a key signal of banking-sector risk -- expanded to 29.7 bps, the widest since May 2020…”

March 2 – Reuters (Karin Strohecker): “With much of Moscow's $640 billion reserves under lock and key in the West and sanctions crippling cross-border capital flows, investors fear Russia may be heading for its first ever default on sovereign hard currency debt. On Wednesday, foreign investors were effectively stuck with their holdings of rouble-denominated bonds -- known as OFZs -- after the central bank temporarily halted coupon payments and settlement system Euroclear stopped accepting Russian assets.”

March 2 – Bloomberg (Sydney Maki): “Russia’s credit rating was cut to junk by Moody’s… and Fitch Ratings as risks mount that international sanctions imposed in response to the country’s invasion of Ukraine could undermine its capability and willingness to service debt. Moody’s downgraded Russia’s long-term foreign debt rating to B3 from Baa3 Thursday. It cited ‘heightened risk of disruption to sovereign debt repayment given the severe and coordinated sanctions and significant concerns around Russia’s willingness to service its obligations.’ That came after Fitch lowered Russia six levels to B from BBB…”

March 3 – Bloomberg: “The big question now facing Russian debt owners is whether they ever get their money back. The government is paying its bond coupons for now, but with the war in Ukraine raging and foreign reserves frozen, it’s unclear how or when investors will receive their cash. Even though the central bank called the ban on transferring coupon payments temporary, the financial meltdown has been so severe that no one knows how it will be repaired or whether Russia would even have any motivation to service debt.”

March 2 – Financial Times (Martin Arnold and Nastassia Astrasheuskaya): “The Austrian unit of Sberbank has been pushed into failure by far-reaching sanctions on Russia, becoming the first banking victim of the measures after they caused a run on the bank and left its parent unable to help. Following the Austrian unit’s collapse… the state-owned lender said it was withdrawing entirely from Europe. The EU authority responsible for restructuring failing banks said the demise of the most troubled European units of Sberbank, Russia’s biggest lender, had come at ‘lightning speed’.”

March 2 – Bloomberg (Laura Benitez): “Contracts insuring $41 billion of Russian sovereign debt may be rendered worthless, even as they signal a record likelihood of default. That’s because international sanctions placed on the country in response to President Vladimir Putin’s invasion of Ukraine may both trigger credit-default swaps and also prevent the underlying bonds from being used for settlement, according to… Citigroup Inc., CreditSights Inc. and Vanguard Asset Management. ‘As it stands the sovereign debt can be deliverable into CDS,’ said Nick Eisinger, co-head of emerging-markets active fixed income at Vanguard... ‘The challenge will be how to do the auction if indeed this is fully sanctioned.’”

March 3 – Reuters (Tassilo Hummel and Lawrence White): “Societe Generale warned it could be stripped of its business in Russia, where it has more than 18 billion euros ($19.97bn) of exposure, in one of the starkest indications yet by a global bank of the potential impact of fallout from Russia's invasion of Ukraine on Western banks.”

March 2 – Bloomberg: “The Russian stock market has been shut for days and officials are barring any cash going to foreign investors. Funds from London to New York have suspended trading. For now at least, any financial asset linked to Russia looks all but frozen. Even commodity shipments, the country’s economic lifeblood, are being disrupted and some buyers have refused Russian oil.”

March 3 – Bloomberg (Carolina Wilson, Denitsa Tsekova, Elaine Chen and Emily Graffeo): “Major index providers are officially cutting Russian assets from their gauges, ratcheting up the pressure on an exchange-traded fund industry already facing an extraordinary stress test… Given the chaos surrounding ‘uninvestible’ Russian securities, the moves aren’t a surprise. But they further complicate the outlook for ETFs already suffering after sanctions and the Moscow market shutdown made their underlying assets virtually impossible to buy or sell.”

March 4 – Bloomberg (Michael Msika): “The escalation of the war in Ukraine is pushing investors to exit European stocks like never before amid rising inflation risks, according to Bank of America Corp. strategists. European equities had their largest outflows on record at $6.7 billion in the week…”

February 28 – Bloomberg (Loukia Gyftopoulou and Will Louch): “JPMorgan… and Danske Bank A/S were among asset managers to freeze funds with exposure to Russian equities amid a plunge in markets. JPMorgan Asset Management said clients won’t be able to buy or redeem shares in the JPM Emerging Europe Equity fund or its Russia fund…”

March 1 – Bloomberg: “The Russian central bank has banned coupon payments to foreign owners of ruble bonds known as OFZs in what it called a temporary step to shore up markets in the wake of international sanctions. The Bank of Russia issued the instruction to depositaries and registries as part of a raft of measures announced this week that included a freeze on local security sales by foreigners. It could leave foreign investors who held almost 3 trillion rubles ($29bn) in the debt at the start of February unable to collect income…”

March 2 – Bloomberg (Finbarr Flynn): “Investors hold about $75 billion of Russian corporate bonds that may be affected by U.S., British or European Union sanctions after Russia’s invasion of Ukraine met with a raft of penalties. The energy and financial sectors account for the majority…”

Market Mania Watch:

March 1 – Bloomberg (Drew Singer): “New stock offerings in the U.S. slumped to the lowest in more than a decade last month… Initial and secondary public offerings collapsed 92% to $5.95 billion from the year earlier... That’s the least since September of 2011 as falling stock markets pushed a series of IPOs below their offering prices.”

Inflation Watch:

February 27 – New York Times (Jeanna Smialek): “Doughnut sellers, milkshake purveyors, tire manufacturers and rental car agencies are all discovering that something is different about America’s pandemic-weathered economy: People are willing to pay more for the goods and services they want to buy. Companies are taking advantage of a moment of hot and seemingly unshakable demand — one in which consumers are spending ‘with a vengeance,’ to borrow the words of one executive… Corporate executives have spent recent earnings calls bragging about their newfound power to raise prices, often predicting that it will last.”

March 1 – Bloomberg (Kim Chipman and Allison Smith): “U.S. bakeries, many of which are passing on higher costs to customers, are anxiously watching the price of world wheat soar as Russia’s invasion of Ukraine adds to supply chain shakeups for the staple food.”

March 2 – Reuters (Jessica DiNapoli): “Get ready for the $10 tube of toothpaste. Colgate-Palmolive Co CEO Noel Wallace said last week at an industry conference that the household goods maker sees its new Optic White Pro Series toothpaste as the type of premium product ‘vital’ to its ability to raise prices… His remarks come when many consumer products companies are hiking prices as much as they can to offset their own rising costs, a trend that could continue due to the conflict between Russia and Ukraine, whose economic risks include driving up gasoline prices.”

Biden Administration Watch:

March 2 – Reuters (Steve Holland, Makini Brice and Andrea Shalal): “U.S. President Joe Biden assailed Russian President Vladimir Putin, barred Russian flights from American airspace and led Democratic and Republican lawmakers in a rare display of unity… in a State of the Union speech dominated by Russia’s invasion of Ukraine. ‘Let each of us if you're able to stand, stand and send an unmistakable signal to Ukraine and to the world,’ Biden urged Democrats and Republicans… He took aim at Putin, saying the Kremlin leader had badly miscalculated how events would unfold and that now ‘Russia’s economy is reeling and Putin alone is to blame.’ ‘He thought he could roll into Ukraine and the world would roll over. Instead he met a wall of strength he never imagined. He met the Ukrainian people,’ he said. ‘From President Zelenskiy to every Ukrainian, their fearlessness, their courage, their determination, inspires the world.’”

February 26 – New York Times (Peter Baker): “As President Biden tells the story, he was blunt with Vladimir V. Putin during a meeting in Moscow more than a decade ago. ‘I’m looking into your eyes, and I don’t think you have a soul,’ Mr. Biden recalled telling the K.G.B. veteran. Mr. Putin smiled. ‘We understand one another,’ he said. Now, as the United States seeks to rally the world to counter Russia’s invasion of Ukraine, Mr. Biden and Mr. Putin, the Russian president, are testing their understandings of one another as never before, trying to anticipate and outmaneuver each other with the fate of millions of people in the balance. Not since John F. Kennedy and Nikita S. Khrushchev squared off over Berlin and Cuba have an American president and Russian leader gone eyeball to eyeball in quite such a dramatic fashion.”

March 1 – Reuters (David Morgan and Doina Chiacu): “U.S. Senate Republican leader Mitch McConnell said… Republicans largely support President Joe Biden's actions toward Russia over its invasion of Ukraine, but that lawmakers have hit a snag in efforts to agree on aid to Kyiv. ‘I think there's broad support for the president in what he's doing now. Our biggest complaint is, what took him so long?’, McConnell told a press conference…”

March 4 – Reuters (Timothy Gardner): “A bipartisan group of U.S. senators introduced a bill on Thursday to ban U.S. imports of Russian oil, saying the shipments could be replaced by boosting output in North America and other places. The bill would have to pass the Senate and House and be signed by President Joe Biden to become law, but the White House has indicated reluctance to support moves that could increase the price of gasoline at a time when inflation is already high.”

March 3 – Wall Street Journal (Yuka Hayashi): “The Biden administration said it is realigning its trade policy toward China, looking at all existing tools and potentially new ones to combat Beijing's state-led nonmarket practices. In its annual trade policy agenda…, the Office of the U.S. Trade Representative said the U.S. is raising its concerns directly with China and accelerating joint work with allies and partners. ‘We are clear-eyed about China's doubling down on its harmful trade and economic abuses,’ the USTR said in the report, noting that its ‘holistic and pragmatic’ approach to the bilateral relations will focus on long-term benefits for American workers.”

February 27 – CNN (Chandelis Duster and Daniella Diaz): “Republican Sen. Mitt Romney of Utah… called the Russian government ‘a pariah’ in the wake of the country's invasion of Ukraine and said countries should continue cranking up sanctions against ‘an evil regime.’ ‘The world is behind the people of Ukraine. ... The Russian government is a pariah and the entire world should be protesting and letting Russia know how badly they're seen on the world stage,’ Romney told CNN's Dana Bash…”

March 1 – Reuters (Ben Blanchard and Yew Lun Tian): “A delegation of former senior U.S. defence and security officials sent by President Joe Biden arrived in Taipei… on a visit denounced by China and happening in the midst of Russia's invasion of Ukraine. The visit, led by one-time chairman of the Joint Chiefs of Staff Mike Mullen, comes at a time when Taiwan has stepped up its alert level, wary of China taking advantage of a distracted West to move against it.”

March 2 – Associated Press: “Maintaining peace and stability across the Taiwan Strait is ‘not just a U.S. interest, but also a global one,’ former Chairman of the U.S. Joint Chiefs of Staff Mike Mullen said… during a visit to Taiwan… Mullen said that peace and stability in the Indo-Pacific region have ‘never been more important.’ ‘We come to Taiwan at a very difficult and critical moment in world history. As President Biden has said, democracy is facing sustained and alarming challenges, most recently in Ukraine,’ he said… to Tsai. ‘Now more than ever, democracy needs champions.’”

Federal Reserve Watch:

March 2 – Bloomberg (Craig Torres): “Federal Reserve Chair Jerome Powell backed a quarter-point interest-rate hike this month to commence a series of increases and didn’t rule out a larger move at some stage, despite uncertainty caused by Russia’s invasion of Ukraine. ‘I am inclined to propose and support a 25 bps rate hike,’ Powell told the House Financial Services Committee... ‘To the extent that inflation comes in higher or is more persistently high than that, then we would be prepared to move more aggressively by raising the federal funds rate by more than 25 bps at a meeting or meetings.’”

March 2 – Reuters (Howard Schneider and Lindsay Dunsmuir): “Federal Reserve Chair Jerome Powell, balancing high U.S. inflation against the complex new risks of a European land war, said Wednesday the central bank would begin ‘carefully’ raising interest rates at its upcoming March meeting but be ready to move more aggressively if inflation does not cool as quickly as expected. Powell called the Russian invasion of Ukraine ‘a game changer’ that could have unpredictable consequences.”

March 3 – Yahoo Finance (Brian Cheung): “The Federal Reserve’s top figure said… the central bank should have acted sooner to pull back on its pandemic-era stimulus and get ahead of rising inflation. Fed Chairman Jerome Powell told the Senate Banking Committee that with prices increasing at the fastest clip since 1982, easy money policies from the Fed — combined with longer-than-expected supply chain snags — appear to be behind inflation. ‘Hindsight says we should have moved earlier,’ Powell said…, adding that ‘we’re going to use our tools and we’re going to get this done.’”

U.S. Bubble Watch:

March 4 – CNBC (Jeff Cox): “Job growth accelerated in February, posting the biggest monthly gain since July as the employment picture got closer to its pre-pandemic self. Nonfarm payrolls for the month grew by 678,000 and the unemployment rate was 3.8%...”

March 2 – Yahoo Finance (Emily McCormick): “U.S. private-sector employers brought back more jobs than expected in February… Private payrolls rose by 475,000 in February compared to January, ADP said... February's report also came alongside a sharp upward revision to January's payrolls. In January, private sector employment rose by 509,000… Previously, ADP reported January payrolls fell by 301,000…”

March 3 – CNBC (Jeff Cox): “Initial claims for unemployment insurance totaled 215,000, the lowest tally since the beginning of the year and fewer than Wall Street estimates, the Labor Department said…”

March 1 – Bloomberg (Reade Pickert): “U.S. manufacturing activity advanced in February after an omicron-related setback a month earlier, as new orders growth and production accelerated. The Institute for Supply Management’s gauge of factory activity increased to 58.6 from 57.6 in January… ISM’s new orders measure advanced nearly four points to a five-month high of 61.7…”

March 3 – Bloomberg (Reade Pickert): “Rapid wage growth in the U.S. likely isn’t retreating any time soon. The February jobs report on Friday is forecast to show average hourly earnings advanced another 0.5% last month, pushing the year-over-year gain to 5.8%. Excluding two pandemic-distorted prints in 2020, the annual increase would be the strongest in data back to 2007… Economists at Goldman Sachs Group Inc. estimate average hourly earnings to rise at a pace of 5% or more through the rest of the year.”

Economic Dislocation Watch:

March 1 – Reuters (Alexander Schummer): “Canada ratcheted up pressure on Russia… for its invasion of Ukraine by shutting ports to Russian-owned ships and saying that holdings of all Russian oligarchs and companies in the country are under review. Canada has announced a slew of measures to isolate Russia, including imposing sanctions on Russian President Vladimir Putin, closing Canadian airspace to Russian planes, banning oil imports and forbidding Canadian financial institutions from dealing with the Russian central bank, acting in tandem with other Western countries.”

February 27 – Wall Street Journal (Alistair MacDonald and William Boston): “Russia’s invasion of Ukraine is piling new troubles onto the world’s already battered supply chains. The fighting has shut down car factories in Germany that rely on made-in-Ukraine components and hit supplies for the steel industry as far as Japan. It has severed airways and land routes that had become crucial since the pandemic began gumming up sea trade. The conflict is also bottling up Ukraine and Russia’s vast commodity exports, sending the price of oil, natural gas, wheat and sunflower oil rocketing. Shipping from Ukrainian ports, an important corridor for grain, metal and Russian oil shipments to the rest of the world, has all but ceased.”

March 3 – Bloomberg (Sharon Cho): “For clues on how toxic Russian oil has become, look no further than the trade for tankers that export it. It now costs about $3.5 million to hire a tanker to deliver a million barrels to Italy from Russia’s Black Sea port of Novorossiysk -- a voyage that should take no longer than a week. That’s a more-than 300% gain from before the invasion of Ukraine began. It also assumes traders can find an owner willing to risk letting their ship enter a region where five merchant ships have been blown up in the week since the attack started, and where NATO has warned of an increasing risk of collateral damage to vessels.”

February 28 – Reuters (Kate Holton and Jonathan Saul): “Britain… ordered its ports to block any vessels that are Russian-flagged or believed to be registered, owned or controlled by any person connected with Russia as it ratcheted up the pressure on Moscow. Transport Secretary Grant Shapps said… further detailed sanctions against Russian shipping were being drawn up following Russia's invasion of Ukraine.”

March 1 – Reuters (Jonathan Saul, Stine Jacobsen and Jacob Gronholt-pedersen): “The world's three biggest container lines… temporarily suspended cargo shipments to and from Russia in response to Western sanctions on Moscow following its invasion of Ukraine, in a further blow to trade with the country…”

February 28 – Wall Street Journal (Sean McLain): “Toyota… shut down all 14 of its factories in Japan after a supplier suffered a computer-virus attack, but the company said the factories would reopen Wednesday. The supplier, Kojima Industries Corp., said it had server trouble Saturday night and discovered a virus and a threatening message after restarting the server.”

March 3 – Reuters: “Russia has decided to stop supplying rocket engines to the United States in retaliation for its sanctions against Russia over Ukraine, Dmitry Rogozin, head of the state space agency Roscosmos, said… ‘In a situation like this we can't supply the United States with our world's best rocket engines. Let them fly on something else, their broomsticks, I don't know what,’ Rogozin said on state Russian television.”

Fixed-Income Bubble Watch:

March 2 – Bloomberg (Adam Tempkin): “A nearly $1.9 billion commercial mortgage bond linked to a portfolio of office buildings owned by Columbia Property Trust Inc. and Allianz SE was delayed on Wednesday due to market weakness… Selling any kind of debt, from junk bonds to asset-backed securities, has grown more unpredictable recently, as steep moves in yields result in more deals getting postponed. It’s a sharp change in markets that for much of the last two years would hand out credit to just about any borrower.”

March 2 – Bloomberg (Romy Varghese): “California, whose recovery of jobs lost during the height of the pandemic lags that of the U.S. overall, said low labor market force growth and supply chain disruptions pose risks to its municipal-bond investors. In documents circulated to potential buyers of its $2.2 billion general-obligation deal on March 9, the state added the threats to its list of dangers they should consider.”

China Watch:

March 4 – Bloomberg (Wei Zhou): “China’s home sales slump is spreading to the largest developers, including some state-owned enterprises and firms that are considered better quality. Further policy easing might not be enough to prevent another sales correction in the first half, according to Nomura Holdings Inc. analysts. That would exacerbate the industry’s cash crunch and weigh on the world’s second-largest economy.”

March 4 – Bloomberg (Dorothy Ma): “Chinese high-yield dollar bonds dropped 2-5 cents on the dollar Friday, according to credit traders, as developers continued to slide alongside stock weakness. A Bloomberg index of China junk dollar notes declined for a seventh day Thursday…”

March 3 – Wall Street Journal (Rebecca Feng): “After more than 10 dollar-debt defaults by property developers over the past year, many investors have come to the conclusion that trust is broken in the $200 billion market for high-yield bonds of Chinese companies. Since last summer, when the financial troubles of China Evergrande Group sparked a selloff in the giant property company’s bonds and those of its peers, the market has remained deeply distressed, with no end in sight to the malaise. A string of easing measures from Chinese authorities, local governments and banks to support the housing market and help developers access funding onshore have so far done little to change the mood in the market. China’s top 100 developers’ monthly contracted sales volume fell for the eighth straight month in February, plunging 47% from a year earlier…”

February 28 – Bloomberg (Alice Huang and Dorothy Ma): “Bond-payment pressures will ramp up for China’s embattled property sector this month, just as companies are due to release their 2021 results and continue to face slumping new-home sales and tight liquidity. Stressed developers face at least $3.7 billion of payments on dollar and onshore public bonds… For all Chinese real estate firms, there’s 37.5 billion yuan ($5.9bn) of yuan notes that investors could demand repurchase of in March. In addition, the sector has $7.6 billion of trust payments due this month…”

Central Banker Watch:

February 28 – Reuters: “The Russian central bank raised its key interest rate to 20% from 9.5% on Monday in an emergency move, and authorities told export-focused companies to sell foreign currency as the rouble tumbled to record lows.”

Global Bubble Watch:

March 3 – Wall Street Journal (Mark Maurer): “Companies that divest from their Russian holdings will have to book hefty write-downs and face complex accounting judgments, experts say. Businesses including BP PLC, Shell PLC and Apple Inc. have begun cutting ties with Russia as it continues its attacks on Ukraine. On Sunday, BP said it plans to exit its roughly 20% stake in oil company Rosneft Oil Co. , followed by Shell a day later saying it would pull back from its joint ventures with Gazprom… Commodities firm Glencore PLC said it was reviewing its business in Russia… Companies outside the oil-and-gas industry, such as Apple and Dell…, said they would retreat from Russia by halting product sales.”

March 3 – Wall Street Journal (William Boston): “After a pandemic and a global chip crunch, Russia’s war in Ukraine has unleashed auto makers’ third supply-chain crisis in as many years. The fighting in Ukraine has shut down small but important industry suppliers, shutting plants far away from the conflict zone, while sanctions and severed trade routes are hindering car and parts shipments to and from Russia, once seen as a growth market.”

February 28 – Bloomberg (Rebecca Choong Wilkins): “High-yield bond sales in Asia are off to their slowest start in six years as China property developers remain largely shut out of the market, dealing a blow to the top arrangers of these deals including HSBC Holdings Plc and JPMorgan…”

February 28 – Bloomberg (Christopher Jasper): “Leasing firms are facing the challenge of recalling jetliners worth billions of dollars from Russian airlines, as sanctions imposed over the Ukraine invasion threaten carriers’ ability to operate rented planes. EU sanctions announced Sunday ban the supply of ‘all goods and technology’ linked to aircraft. Planes can’t be insured, either. That means leasing firms will be required to terminate all contracts with Russian airlines over the next 30 days…”

Europe Watch:

March 2 – Bloomberg (Rachel Morison, Todd Gillespie and Verity Ratcliffe): “European natural gas surged to a record as fears about supply during wartime were compounded by traders’ decisions to avoid dealing with a key Russian player in the market. Benchmark futures rose as much as 60%, before easing. Gas and power traders are backing away from new deals with Gazprom… There’s a further risk that previously agreed contracts start unwinding or clearing houses decide to stop doing business with the Russian company, liquidating their positions.”

March 3 – Bloomberg (Philip Aldrick and Rachel Morison): “Western European nations are scrambling for ways to live without Russian natural gas, bracing for the possibility that either the Kremlin switches off the taps or political pressure for tighter sanctions erupts into a full energy embargo. With Russian troops advancing into Ukraine, European Union governments are concerned that the source of 40% of the region’s gas could either be interrupted in the fighting or by economic measures to contain Russian President Vladimir Putin.”

March 1 – Bloomberg (Jana Randow): “German inflation resumed its ascent, bolstered by a surge in energy costs that’s in danger of intensifying due to Russia’s invasion of Ukraine. After snapping six straight months of acceleration in January, consumer prices jumped 5.5% from a year earlier… A national measure reached 5.1% -- the highest since 1992.”

March 2 – Bloomberg (Jana Randow): “Euro-zone inflation quickened to an all-time high, outstripping expectations as Russia’s invasion of Ukraine threatens to send energy costs soaring at an even faster pace. Consumer prices jumped 5.8% from a year ago in February, up from 5.1% the previous month and more than the 5.6% median economist estimate…”

EM Bubble Watch:

March 3 – Financial Times (Ayla Jean Yackley): “Turkish prices rose at their fastest rate in 20 years in February as the lira tumbled and food and energy prices surged, stirring discontent about the state of the economy. The consumer price index rose 54.4% year on year in February… Food prices climbed 64.5% and transportation jumped 75.8% last month…”

Social, Political, Environmental, Cybersecurity Instability Watch:

February 28 – New York Times (Brad Plumer, Raymond Zhong and Lisa Friedman): “The dangers of climate change are mounting so rapidly that they could soon overwhelm the ability of both nature and humanity to adapt, creating a harrowing future in which floods, fires and famine displace millions, species disappear and the planet is irreversibly damaged, a major new scientific report has concluded. The report… by the Intergovernmental Panel on Climate Change, a body of experts convened by the United Nations, is the most detailed look yet at the threats posed by global warming. It concludes that nations aren’t doing nearly enough to protect cities, farms and coastlines from the hazards that climate change has already unleashed, such as record droughts and rising seas, let alone from the even greater disasters in store as the planet keeps heating up.”

February 28 – Financial Times (Camilla Hodgson): “Risks to global supply chains are rising from the increasingly severe effects of climate change laid bare in a landmark UN report this week, and could place extra pressure on fuel stability and essential goods worldwide. Recent crises have thrown the vulnerability of supply chains into sharp focus, as Russia’s invasion of Ukraine has highlighted Europe’s dependence on oil and gas imports, while the international manufacture and distribution of goods remains chaotic following the pandemic.”

March 2 – New York Times (Somini Sengupta and Lisa Friedman): “War and politics are complicating the efforts of the two biggest polluters in history — the United States and Europe — to slow down global warming, just as scientists warn of intensifying hazards. On Tuesday evening, President Biden barely made a mention of his climate goals in the State of the Union speech despite promises to make climate an issue that drives his presidency. European politicians have their own problem: They are struggling to get out from under one of the Kremlin’s most powerful economic weapons — its fossil fuel exports, which Europe relies on for heat and electricity.”

March 2 – Wall Street Journal (Jim Carlton): “California’s snowpack has shrunk to about two-thirds of normal, as the state’s relentless drought produced the driest January and February on record and raised the likelihood of more wildfires and deeper water cuts to cities and farms.”

March 2 – Reuters (Renju Jose): “Authorities in Australia issued more orders for people to leave their homes on Thursday after heavy rain triggered flash floods in its largest city, with officials warning of worse to come and some 500,000 people likely to face orders to evacuate. Australia's east coast has been battered by a severe weather system that has cut off entire towns and submerged hundreds of homes and farms as it has moved south from Queensland state over the past week.”

Geopolitical Watch:

March 2 – Bloomberg (Peter Martin and Jennifer Jacobs): “A sobering realization is setting in as American policymakers begin to assess the new, harsher international environment. Officials in Washington are recognizing that ties between Russia and China, long discounted—or even dismissed—as a ‘marriage of convenience,’ have the potential to reshape global politics… In early February, as American warnings about a possible Russian attack grew increasingly urgent, Putin visited his Chinese counterpart, Xi Jinping, for the Winter Olympics... During the visit the Chinese and Russian governments issued a more than 5,000-word joint statement that hailed a partnership with ‘no forbidden zones.’ The document, peppered with a favored Russian and Chinese talking points, appeared to be a call for the nations to establish spheres of influence in their respective regions, says a senior U.S. official. Department of Defense spokesman John Kirby said the document signaled China’s ‘tacit support’ for Russian threats to Ukraine.”

March 2 – Bloomberg (Edward Wong and Julian E. Barnes): “A Western intelligence report said senior Chinese officials told senior Russian officials in early February not to invade Ukraine before the end of the Winter Olympics in Beijing, according to senior Biden administration officials and a European official. The report indicates that senior Chinese officials had some level of direct knowledge about Russia’s war plans or intentions before the invasion started last week. President Vladimir V. Putin of Russia met with President Xi Jinping of China in Beijing on Feb. 4 before the opening ceremony of the Olympics. Moscow and Beijing issued a 5,000-word statement at the time declaring that their partnership had ‘no limits,’ denouncing NATO enlargement and asserting that they would establish a new global order with true ‘democracy.’”

March 2 – Reuters (Natalia Zinets and Tony Munroe): “Ukraine's Foreign Minister Dmytro Kuleba asked his Chinese counterpart… to use Beijing's ties with Moscow to stop Russia's military invasion of its neighbour, the Ukrainian foreign ministry said… According to the statement, China's Foreign Minister Wang Yi told Kuleba that Beijing was ready to make every effort to help end the war through diplomacy.”

March 1 – Reuters: “Russian President Vladimir Putin and Venezuelan President Nicolas Maduro discussed increasing a strategic partnership between Russia and Venezuela in a phone call…, the Interfax news agency reported, citing the Kremlin.”

Friday Evening Links

[AP] Attack on Ukrainian nuclear plant triggers worldwide alarm

[Yahoo/Bloomberg] Ukraine Update: Zelenskiy Slams ‘Weak’ NATO, Russia Blocks Media

[Reuters] Ukraine still has 'significant majority' of its military aircraft -U.S. official

[Yahoo/Bloomberg] Commodities Post Record Weekly Gain of 13% on Ukraine War

[Yahoo/Bloomberg] Gold Set for Biggest Weekly Gain Since 2020 as War Boosts Havens

[Yahoo/Bloomberg] Oil Has Wildest Week on Record With Markets Jolted by War

[Yahoo/Bloomberg] Wheat Mounts Historic Week as War Sparks Deepening Supply Fears

[Yahoo/Bloomberg] Stocks Drop, Oil Tops $115 Amid Supply-Crunch Fear: Markets Wrap

[Reuters] Exclusive: EU may curb Russia's rights in IMF

[Yahoo/Bloomberg] A Quirk in Russian Bonds Could Hamper Default Swaps Payout

[FT] ‘They are trying to exterminate us’: Mariupol comes under Russian onslaught

[FT] Investors face deep losses on $170bn in Russian assets

Friday Afternoon Links

[Reuters] More explosions heard in Kyiv in sign assault is intensifying

[Yahoo/Bloomberg] White House Considering Ban on Russian Oil Imports to U.S.

[Yahoo/Bloomberg] Stocks Decline, Oil Surges at End of Chaotic Week: Markets Wrap

[Reuters] Stocks sink, euro plunges as Ukraine war shakes markets

[Reuters] Russia supply angst fuels hefty weekly gains for Oil, gas and metals

[Yahoo/Bloomberg] Nickel Tops $30,000 for First Time Since 2008 Amid Short Squeeze

[Yahoo/Bloomberg] Food Prices Climb to Record as Ukraine War Roils Trade

[Yahoo/Bloomberg] The Sanctions Imposed So Far on Russia From the U.S., EU and U.K.

[AP] Russia’s invasion of Ukraine leaves global trade in tatters

[Yahoo/Bloomberg] Russia Jolts Global Fertilizer Market by Seeking End to Exports

[Reuters] Russian invasion of Ukraine forces Swedes to rethink NATO membership

[Reuters] Russia fights back in information war with jail warning