Just a week ago, we were living in a united world, where there were tensions. But now, the world is divided between the Russians and the rest. The economic implications are as severe as the real world impacts and the risk appetite is limited.
Yesterday’s talks in Belarus between the Ukrainian and Russian committees were overshadowed by the intensifying military fight in Ukraine. Putin, who seems frustrated with the Ukrainian resistance, and the Westerns sanctions imposed sanctions to the West on his turn by closing its airspace to 36 countries and banning its residents from transferring hard currency abroad.
The direct implication of Russin sanctions was a surge in cryptocurrency prices, and especially Bitcoin. The coin, which was moving along with the risk assets less than a couple of days ago is now The Asset that Russians and Ukrainians rely on to get their funds out of the traditional system which has become very hostile to them. It is reported that Bitcoin purchases using Rubles and Hryvnias soared as Russia imposed sanctions on its citizens.
How safe?
Being able to transact value in Bitcoin also helps Russian oligarchs go around the Western sanctions. It may also help Russian companies and even the Russian central bank to move funds as these entities can no longer access US dollars, and most of the Russian banks are no longer part of the SWIFT system.
If there is no policy response from the West to the Bitcoin adoption from Russia, the positive trend could further develop and make Bitcoin the number one safe haven asset in the war setup. Yet, how much the West would tolerate the Bitcoin interference to its political decisions is a major question, that increases the regulatory risks for cryptocurrencies.
For Russians though, the cryptocurrency risk is definitively worth be taken.
Ruble
Ruble lost more than 30% in Monday and the Russian central bank more than doubled its bank rate to 20% to stop the bleeding. The Russian stock exchange on the other hand remains closed to avoid a bloodbath. It will open once the Russians have taken enough measures to temper the catastrophe that’s about to hit the Russian stocks. The Russian shares plunged in London and Deutsche Börse suspended trading in shares of sixteen Russian companies, including Aeroflot, Rosneft, Sberbank, VTB and VEB Finance.
Divesting
BP shares dived near 7% on decision to get rid of 20% stake in Russian Rosneft and closed the session near 4% lower. Shell announced that it will end its alliance with Gazprom as well, turning all eyes to other oil giants like TotalEnergies and Exxon, which haven’t yet disclosed what they will do. Exxon for example has 30% stake in a huge offshore crude development and the pressure for action is obviously mounting. The shares gained 0.75% yesterday as oil jumped on intensifying war in Ukraine. But we could see a certain selloff in Exxon shares if the company announced sanctions against its Russian teammates as well, that’s the price to pay to show some dignity.
Swiss comply
Switzerland on the other hand took a major step in its history of neutrality and decided to adopt the full range of Western sanctions imposed on Russia. As such, the country announced to freeze the assets of 363 Russian individuals and 4 entities. The Swiss banks will be under some more pressure, after being hit by the Swiss Secrets scandal last week, but that’s the price to pay, as well, for avoiding a harmful isolation and save the reputation of the country.
Green migration
The commodity trading in Geneva remained mostly intact as the industry has not yet been sanctioned by Europe. Yet, the ultimate step in Western penalties would be to sanction energy and commodities – which has the power to change the face of the world, especially when it comes to our addiction to the fossil fuel energy.
The barrel of US crude hit $100 then eased as the US said to consider using 30 million barrels from the Strategic Petroleum Reserve, with an equivalent amount from a group of other countries. That should ease the positive pressure for some time, but it won’t resolve the problem of heavy oil dependency. Even less, as OPEC confirmed its commitment to the OPEC+ deal with Russia and is not expected to raise the oil production despite the worsening energy crisis.
The fuel pressure has apparently gotten too much for Germany which announced yesterday that it aims for 100% energy from renewable sources by 2035. won’t only ease the country’s heavy addition to oil – that anyway should come from someone else’s land if not Russia – but it will also help fighting the climate change.
Renewable energy stocks took a ride to the north yesterday. The biggest gainer of the S&P500 yesterday was SolarEdge. The shares rallied near 15% in a single session, while the other green darlings including Enphase, Sun Power and First Solar joined the party.
Rising energy and commodity prices put a further pressure on the global inflation and leave the central banks in a difficult position to readjust their post-Covid policies. The RBA maintained its policy rate unchanged at today’s meeting for the 15th month in a row as expected, citing that the war in Ukraine is a new major source of uncertainty. The Aussie-dollar consolidated gains just below the 73 cents mark as the surging iron ore prices give a decent support to the Aussie these days, even with a quite strong safe haven demand for the greenback.
In the stock markets, the European stock indices remain under a decent negative pressure due to the war, but the US indices erased early session gains yesterday and Nasdaq even managed to close the session in the positive.
The US futures are flat this morning, and we are now counting down to the death cross formation in Nasdaq, which, along with the tighter Fed expectations and the war pressure may not extend gains sustainably.
