Aurelia Butler

LONDON/NEW YORK (Reuters) -Money managers are scanning roiled global markets for bargains after unprecedented Western sanctions propelled Russia into a full-blown crisis, sent oil prices soaring and put monetary policy bets in flux. The wild gyrations that have been a hallmark of markets in recent weeks continued on Monday, as the rouble lost nearly a third of its value, investors sought safety in government bonds and the dollar and major indexes in Europe and the United States pared initial sharp losses.Though few expect the volatility to quiet down anytime soon, some were looking for opportunities in stocks they believe may have grown cheap after a weeks-long selloff that has taken the S&P 500 down 8% in 2022 and shaved 7% off Europe’s STOXX 600, as they bet that strong earnings will buoy stock prices. “On a fundamental basis the world economy is in reasonable shape, earnings are strong and we are not expecting a (global) recession,” said Fahad Kamal, chief investment officer at Kleinwort Hambros. “The range of outcomes is very wide but in the long run we invest based on several metrics … Those things do not scream panic,” he said. The S&P 500 recently traded at around 19.7 times forward earnings, from around 22 times at the beginning of the year after losing more than $3 trillion in value year-to-date. Data from Refinitiv also indicates that U.S. and European companies overall are expected to increase earnings this year by about 8%. “Russia-Ukraine tension is a low earnings risk for US corporates, but an Energy price shock amidst an aggressive central bank pivot focused on inflation could further dampen sentiment/growth,” JPMorgan (NYSE:JPM) analysts said in a note.Still, others were betting that the recent geopolitical uncertainty would mitigate monetary tightening from central banks, a factor that has weighed heavily on stocks in recent weeks. BlackRock (NYSE:BLK) strategists said the Ukraine crisis “has reduced the risk of central banks slamming the brakes to contain inflation.” The strategists said they were “tactically” upgrading equities, noting they believe “market expectations of rate hikes have become excessive and have created opportunities in equities.”Markets are pricing in nearly 150 basis points of Federal Reserve tightening by next February, including a widely expected rate increase in March. However, odds of a hefty 50 basis-point hike next month are down to about 7% from 22% chance estimated 10 days ago, according to the CME Group’s (NASDAQ:CME) FedWatch tool.Analysts at UBS Global Wealth Management, meanwhile, advised clients to increase their exposure to raw materials to buffer portfolios against inflation. The conflict between Russia, one of the world’s largest commodity exporters, and Ukraine has already helped push up oil prices to their highest level since 2014, while U.S. inflation last month grew at its fastest pace in nearly four decades. King Lip, chief strategist at Baker Avenue Asset Management in San Francisco, was shifting more of client portfolios to commodities, through an Invesco ETF with diverse exposure to commodities, which generally are expected to benefit in inflationary environments. “We were buying it already because of the inflation hedge and now we just think it is going to have more tailwinds on it because you are going to have supply disruptions,” Lip said. But many remained wary. Goldman Sachs (NYSE:GS) recently cut forecasts for the STOXX 600 pan-European equity index and the FTSE, noting the knock-on effect on production costs and GDP to Europe, which is heavily dependent on Russia for its energy needs. They said, however, that corporate balance sheets were strong and called the conflict “largely one that raises the risk premium rather than derails the recovery.”Generali (MI:GASI) Investments equity strategist Michele Morganti predicted another 5% downside, based on previous risk premia spikes during the financial crisis of 2008 and the onset of the coronavirus pandemic in 2020.”Looking further ahead though, there’s a sense it will probably get worse before it gets better,” Morganti told clients. “Markets remain event-dependent, and we would refrain from aggressively buying current dips.” More

McConnell said in a floor speech that ramped up military spending must follow recent sanctions imposed on Moscow over its invasion of Ukraine to ensure the United States can counter advancements in Russian and Chinese weaponry that he said were intended to keep U.S. forces away from troubled regions. “It is this president’s job to seriously meet the growing threats posed by Russia and China,” McConnell said in a floor speech.”President Biden must lead by example. The president’s next budget request must include at least a 5% increase in defense spending above inflation. Russia and China have prioritized military modernization literally for decades,” he said. “We are actually behind.” More

The White House has sent a high-level delegation of former officials to Taiwan to send a message of reassurance and to remind China not to step up pressure on Taipei while the US is focused on the war in Ukraine. Michael Mullen, former chair of the US joint chiefs of staff, is leading the delegation, which includes Michèle Flournoy, a former top Pentagon official, according to two people familiar with the situation. In addition to the show of support for Taipei, the delegation will urge Taiwan to intensify long-needed efforts to bolster its own defences. The decision to send a delegation comes amid concerns that Beijing might be emboldened by Russian aggression and attempt to take advantage of the American focus on Ukraine to boost pressure on Taiwan, over which China claims sovereignty.Indeed, the global attention remains largely on Ukraine, where Russian forces have launched a heavy bombardment of Kharkiv. The assault overshadowed the first direct talks between Ukrainian and Russian officials since President Vladimir Putin began his invasion five days ago.Moscow’s artillery barrage on Ukraine’s second-largest city is a gruesome escalation of the tactics, and analysts warned it may only be a foretaste of worse to come.Meanwhile in Russia, the impact of unprecedented western sanctions is hitting the economy. Russia’s central bank more than doubled interest rates yesterday in an attempt to steady financial markets, after the rouble tumbled as much as 29 per cent.Negotiations: Roman Abramovich is in Belarus “trying to help” end the war in Ukraine after Kyiv asked him to assist in peace talks, a spokesperson for the Russian-Israeli billionaire told the Financial Times.Sanctions: The EU has frozen the assets and imposed a travel ban on more than half a dozen of Russia’s most prominent oligarchs. Switzerland announced that it intended to match EU sanctions on Russia, breaking its longstanding tradition of political neutrality.Corporate news: As BP, Equinor and Shell have pledged exits from joint ventures in Russia, they have increased pressure on their peers to follow suit. Daimler Truck is also ending partnerships with Russian businesses while Volvo and Jaguar Land Rover pledged to halt deliveries of cars to the country.Opinion: Every day that Russian forces remain on Ukrainian territory more punishment must be visited upon Putin’s regime, writes Latvia’s defence minister. Ukraine “deserves everything it asks for.”Follow the latest developments on our live blog and track the conflict in maps. Thanks for reading FirstFT Asia. To keep up to date with all that’s happening in Ukraine, sign up here to receive my colleague Valentina Pop’s essential newsletter, Europe Express — Emily Five more stories in the news1. Toyota to shut down Japanese plants after cyber attack The world’s largest carmaker will shut down all of its plants across Japan and the factories of two subsidiaries Hino and Daihatsu after a suspected cyber attack on one of the carmaker’s largest parts suppliers.2. Climate change risks are greater than thought, warns IPCC report The world has a “brief and rapidly closing” window to adapt to climate change, with the risks associated with lower levels of warming greater than previously thought, the latest instalment of a landmark UN report signed off by 270 scientists from 67 countries has concluded.3. Turkish opposition presents pact to defeat Erdogan Six Turkish opposition parties pledged to overhaul the country’s electoral laws and institutions as they signed an “historic” pact aimed at bringing an end to president Recep Tayyip Erdogan’s almost two decades in power.4. Tycoon Richard Li’s FWD files for $1bn Hong Kong IPO FWD, the Asian insurer founded by a son of property tycoon Li Ka-shing, has filed for a Hong Kong initial public offering that aims to raise at least $1bn after its attempt to list on Wall Street came under intense scrutiny from US regulators last year.5. Australian cities under water after ‘rain bomb’ strikes Devastating floods have submerged cities and towns in Queensland and New South Wales, triggering thousands of insurance claims and stoking criticism of the Australian government’s stance on climate change.

Residents evacuate after flooding in Lismore, northeastern New South Wales. The extreme weather has claimed seven lives and flooded 18,000 homes so far © JASON O’BRIEN/EPA-EFE/Shutterstock

Coronavirus digestCadavers are piling up at Hong Kong’s hospitals and public mortuaries as the number of Covid-19 cases soars in the territory.Three in 10 respondents agreed that surveillance at work had increased during Covid, according to a survey from the UK’s largest federation of trade unions.EU pandemic strategy tries to bridge drug companies and civil society as the industry believes Covid response has shown innovation at its finest, but activists decry failure to provide equal access to vaccines.The day aheadThe Reserve Bank of Australia meets The central bank is expected to hold rates at its monthly meeting. Economists expect the RBA to hike interest rates during the third quarter, according to a Reuters poll of economists. (Reuters) Earnings Results are expected from companies including Bayer, Baidu and Man Group. See our full list here. Indonesia CPI data February consumer price index data is due today. In January, Indonesia inflation rose to the highest level in nearly two years. Explore inflation rates around the world with our inflation tracker.

What else we’re reading The best bet for the 2020s is short tech, long commodities Silicon Valley manias tend to lose steam when investors realise they have been pouring money into unprofitable ideas, writes Ruchir Sharma, chair of Rockefeller International. And historically, tech and commodities follow opposite cycles.How a Brazilian crime syndicate built a global drug empire Founded as a prison brotherhood 30 years ago in São Paulo, the Primeiro Comando da Capital, or First Capital Command, has evolved into a multinational mafia, with a revenue stream that generates upwards of $500mn every year, according to state prosecutors. Here’s how they did it.Donald Trump’s accounts may hold him to account The former US president must be feeling more than usually unassailable, after seeing off two impeachments and a special counsel investigation. But despite his love of bombast, Trump’s legal woes are far from over, writes our editorial board.Top tech for the trip to work — and back again Headed back to the office? Here are our top picks of gear worth splurging on to make your commute more enjoyable. From headphones to bicycles, mugs and more. Food and drinkFrom New York to Tokyo, Berlin to Melbourne and beyond, here are FT writers’ picks of the best independent coffee shops in the world. What’s your favourite coffee shop in your city? Tell us at [email protected] and we may feature your response.

© Bonanza | Bonanza Coffee Roasters, Berlin More

Tanks are harbingers of financial chaos as well as physical destruction. Russia knows this as well as any other country. The first Chechen war drained government coffers and precipitated the Russian financial crisis of 1998. The question this time is how far the ripples will spread beyond Russia.The most alarming portent is the rouble’s freefall after western leaders proposed much tougher sanctions. They plan to freeze assets of the Russian central bank, prohibit dealings with it and expel some Russian banks from the Swift international payments network.The shock via Russia’s estimated $630bn of foreign exchange reserves is reduced by its shift into assets the west cannot touch and relatively low government debt levels. Even so, the sanctions package is a declaration of financial war.The central bank doubled interest rates to 20 per cent to protect the rouble. But the currency was down nearly a fifth to 104 against the US dollar. Russians were lining up at ATMs from Sunday. Liquidity evaporated in a blink. The stock market did not open. Rouble-denominated bonds did not trade. Dollar eurobonds halved. The cost of swaps to insure against a Russian default spiralled to 37 per cent of bonds’ face value.The world financial system is fragile. The pandemic is not over yet and government balance sheets are laden with debt. There is scope for the Russian financial crisis to amplify other shocks — surging emerging market food prices, for example. Financial crises overlapped in Russia and Asia in the late 1990s. Victims included US hedge fund Long-Term Capital Management.War and sanctions will dent domestic economic growth and inflate prices, exported to the wider world via hard currency-denominated oil and gas. For sure, exposures this time around are mostly less pronounced. Russia has faded in importance as an investible market, accounting for less than 4 per cent of MSCI’s emerging markets equity index. But there will be plenty of pockets of financial pain, from businesses leasing aircraft to Aeroflot to swanky British boarding schools with Russian pupils. Bond coupon payments will be disrupted. There is a heightened danger of cyber attacks of the kind suffered by Toyota.The subtlest threat is of dislocations we cannot foresee: Lehman moments when panic spreads and markets seize up. Small or middling setbacks for businesses then become existential threats. The war means this threat is greater now than it has been since the early days of the pandemic.The Lex team is interested in hearing more from readers. Please tell us how serious a threat you think the Ukraine war is to financial stability in the comments section below More

The US has taken its most aggressive step yet to cripple Russia’s economy and financial system, announcing a ban on transactions with Russia’s central bank and new sanctions on the Russian Direct Investment Fund and its chief executive Kirill Dmitriev, a key ally of President Vladimir Putin. The move by the US Treasury on Monday morning follows a joint pledge by western nations on Saturday to block Russia’s ability to access roughly $630bn in foreign reserves and impose huge costs on its economy in the wake of its invasion of Ukraine. A senior Biden administration official said the new measures would take effect immediately and were unveiled before US markets opened on Monday to prevent “asset flight”, after learning that the Russian central bank was trying to “move” some of its foreign reserves around. “The unprecedented action we are taking today will significantly limit Russia’s ability to use assets to finance its destabilising activities, and target the funds Putin and his inner circle depend on to enable his invasion of Ukraine,” said Janet Yellen, US treasury secretary. The US Treasury said its Office of Foreign Assets Control would prohibit US individuals from engaging in any transactions with Russia’s central bank, its national wealth fund and its finance ministry. In addition, the US said it would place sanctions on the RDIF, Russia’s most prominent sovereign wealth fund, as well as Dmitriev to stop Putin and his inner circle from raising funds abroad, including in the US.  “This fund and its leadership are symbols of deep-seated Russian corruption and influence peddling globally,” a senior Biden administration official said.

Video: Russia’s invasion of Ukraine: what next? | FT Live

US officials described the actions taken on Monday as an attempt to neutralise Russia’s efforts to create an economic buffer in recent years with the accumulation of foreign reserves. “If their currency was plummeting, they could use those reserves to support the rouble and to defend it,” said one senior Biden administration official, adding that the US steps would “nullify” that “insurance policy”. However, the US Treasury said it would issue a licence to allow “certain energy-related transactions” with the Russian central bank, as the Biden administration sought to mitigate some of the fallout on global energy prices and the US economy. Despite Russia’s efforts in recent years to reduce its exposure to the dollar and its large domestic stockpile of gold, a large portion of its reserves reside overseas. The largest share is held in China, at more than 14 per cent, but the bulk of the remaining reserves are in the US, Germany, France, the UK, Austria and Japan.Russia will continue to earn large amounts of foreign exchange, however, through its oil and gas sales, which have helped to bolster its current account surplus to a record $19bn. The proceeds could then be used to shore up the economy and pay for imports.

Still, the move by the US and its allies to impose sanctions on Russia’s central bank led to a sharp drop in the value of the rouble on Monday, an emergency interest rate increase by Russia’s central bank, and a meeting between Putin and his economic advisers at the Kremlin. In a speech delivered on Monday, Russia’s central bank governor Elvira Nabiullina said the condition of the Russian economy had “altered dramatically” but pledged to “use the necessary tools very flexibly” to deal with the “totally abnormal situation”.A senior Biden administration official said inflation was likely to spike, while purchasing power and investment were likely to drop in the country. “This is a negative and vicious feedback loop that Putin has triggered,” the official said. More

The fierce economic sanctions imposed by the United States and its allies on Russia’s central bank and other key sources of wealth are likely to drive Russian inflation higher, cripple its purchasing power and drive down investments, U.S. officials said on Monday as new sanctions took effect.”This is a vicious feedback loop that’s triggered by Putin’s own choices and accelerated by his own aggression,” a senior U.S. administration official said.The move comes after the United States and its allies last week imposed several rounds of sanctions targeting Moscow, including against Russian President Vladimir Putin and Russia’s largest lenders, after the country’s forces invaded Ukraine in the biggest attack by one state against another in Europe since World War Two.Monday’s action “immobilizes” any assets Russia’s central bank held in the United States in a move that a second senior U.S. official said will hinder Russia’s ability to access hundreds of billions of dollars in assets.The U.S. Treasury Department in a statement on Monday said it had also slapped sanctions on a key Russian sovereign wealth fund, the Russian Direct Investment Fund. More