Economy

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

WASHINGTON — The Treasury Department on Monday moved to further cut off Russia from the global economy, announcing that it would immobilize Russian central bank assets that are held in the United States and impose sanctions on the Russian Direct Investment Fund, a sovereign wealth fund that is run by a close ally of President Vladimir V. Putin.The moves are meant to curb Russia’s ability to use its war chest of international reserves to blunt the impact of sanctions that the United States and European allies have enacted in response to Russia’s invasion of Ukraine.“The unprecedented action we are taking today will significantly limit Russia’s ability to use assets to finance its destabilizing activities, and target the funds Putin and his inner circle depend on to enable his invasion of Ukraine,” Treasury Secretary Janet L. Yellen said in a statement.Russia has spent the last several years bolstering its defenses against sanctions, amassing $643 billion in foreign currency reserves in part by diverting its oil and gas revenues and reducing its holdings of U.S. dollars. New restrictions by the United States and its allies against selling rubles to Russia aim to undercut the country’s ability to support its currency in the face of new sanctions on its financial sector.As a result of the sanctions, Americans are barred from taking part in any transactions involving the Russian central bank, Russia’s National Wealth Fund or the Russian Ministry of Finance.Any Russian central bank assets that are held in U.S. financial institutions are now stuck, and financial institutions outside the United States that hold dollars for the bank cannot move them. Because the United States has acted in coordination with European allies, Russia’s ability to use its international reserves to support its currency has been curbed. Japan joined with Western allies in imposing the central bank sanctions, freezing Russia’s yen-denominated foreign reserves, the news agency Nikkei reported.“This is simply unprecedented to a scale and scope that we haven’t seen since the Cold War,” said John E. Smith, the former director of the Treasury Department’s Office of Foreign Assets Control. “Sanctions against the Central Bank of Russia and the central bank’s assets held worldwide are simply beyond comparison to previous sanctions regimes, particularly involving a major power like Russia.”It is not clear how much of Russia’s currency reserves are held in U.S. dollars, and Biden administration officials declined to provide an estimate in a briefing with reporters on Monday.The sanctions on the Russian Direct Investment Fund represent an expansion of the effort to sever Russian financial ties from the rest of the world and punish Russian elites. The Treasury Department described the fund, which was created in 2011 and operates in the insurance and financial services industries, as Mr. Putin’s “slush fund” and emblematic of Russia’s kleptocracy. The chief executive of the fund is Kirill Dmitriev, a close ally of Mr. Putin.The fund, according to its website, works with the “world’s foremost investors” to make direct investments in leading and promising Russian companies. It has reserved capital of $10 billion under management and has attracted over $40 billion into the Russian economy. The sanctions ban any Americans from investing in the fund and freeze any assets that it holds in the United States.Senior Biden administration officials said the actions were effective immediately. They noted that the value of Russia’s ruble had already fallen more than 30 percent over the weekend and that Russia’s central bank more than doubled its interest rate to try to mitigate the fallout. They also predicted that inflation would soon spike and economic activity would contract as the country’s currency lost value.Even nations that usually remain neutral in global disputes entered the fray.Switzerland, a favorite destination for Russian oligarchs and their money, announced on Monday that it would freeze Russian financial assets in the country, setting aside its tradition of neutrality to join the European Union and a growing number of nations seeking to penalize Russia for the invasion of Ukraine. The country said it would immediately freeze the assets of Mr. Putin, Prime Minister Mikhail V. Mishustin and Foreign Minister Sergey V. Lavrov, as well as all 367 individuals the European Union imposed sanctions on last week.“These are probably the most serious economic sanctions ever imposed on a country,” said Elina Ribakova, the deputy chief economist of the Institute of International Finance, predicting that Russia’s economy could contract by double digits.The U.S. moves represent a significant escalation of sanctions, although the Treasury Department said it was making an exemption to ensure that transactions related to Russia’s energy exports could continue. It is issuing a “general license” to authorize certain energy-related transactions with the Russian central bank.The carve-out means that energy payments will continue to flow, mitigating risks to global energy markets and Europe, which is heavily reliant on Russian oil and gas exports. U.S. officials said that they wanted energy prices to remain steady and that they did not want a spike in prices to benefit Mr. Putin. However, they noted that they were considering measures that would restrict Russia from acquiring technology it needs to be an energy production leader in the long term.“The U.S. and other Western economies have deployed a set of highly potent financial weapons against Russia with remarkable speed,” said Eswar Prasad, a Cornell University economics professor and a former International Monetary Fund official. “Cutting off access to global financial markets and to a country’s war chest of international reserves held in currencies of Western economies amounts to a crippling financial blow, especially to an economy like Russia’s that relies to such a large extent on export revenues.”The measures announced on Monday were born from lessons the United States has learned since imposing sanctions on Russia after its annexation of Crimea in 2014. A senior Biden administration official said that Mr. Putin began amassing international reserves after 2014 to blunt the impact of future sanctions and that the United States, in preparing to exert new pressure on Russia’s economy, determined during months of preparation with European allies that it would need to target Russia’s central bank directly.Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? 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

WASHINGTON (Reuters) – 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 drive down investments , U.S. officials said on Monday as new sanctions took effect.Russia’s central bank has been trying to move hundreds of billions of dollars to safe havens since the latest sanctions were first announced on Saturday, the officials said, adding Monday’s actions will hinder its ability to access funds. More

LONDON (Reuters) – Investors further scaled back bets on Monday for interest rate hikes from major central banks this year as the West ramped up sanctions against Russia for invading Ukraine, unleashing fresh uncertainty about the world economic outlook. Aggressive rate-hike bets priced in by markets from the likes of the U.S. Federal Reserve, Bank of England and European Central Bank had already come off in the past week. But they eased further on Monday, with money markets increasingly confident that the ECB will move later rather than sooner since tougher Russia sanctions which include blocking some banks from the SWIFT global payments system and an oil price surge will hurt the euro zone economy.Markets now fully price in a first, 10 basis point rate hike from the ECB at its September meeting, having positioned for a June move following the ECB’s hawkish pivot earlier this month. They anticipate 30 basis points worth of tightening in total by year-end, or the equivalent of three, 10 bps hikes. That’s down from 35 bps late last week and as much as 50 bps just a couple of weeks ago. A related graphic: ECBratehikes: https://fingfx.thomsonreuters.com/gfx/mkt/gkplgaxrdvb/ECBratehikes.JPG “It is logical for curves to shave off the likelihood of rate hikes in Europe and the U.S,” said ING senior rates strategist Antoine Bouvet. “It is too early to assess the economic impact of the current crisis but the impact on growth will be negative, we just don’t know by how much.”Shares in European banks most exposed to Russia fell sharply on Monday while the wider euro zone banking index slid 6.7% to three-month lows. Banking stocks had benefited in recent weeks from rate-hike expectations. Trade in U.S. futures suggested the Fed was on track to begin its rates lift on in March with a 25 bps rate hike. But the probability of a more aggressive 50 basis-point rate was more like 10%, versus over 20% last week, according to CME data. A Bank of Canada meeting on Wednesday could prove a gauge of how central banks in the West are assessing the potential impact of Russia’s attack on Ukraine on their growth and inflation outlook.Canada’s central bank is widely expected to lift rates by 25 basis point in its first hike since October 2018, with just over six rate moves in total priced in by year-end. The Bank of England is also expected to lift rates by 25 bps in March, although bets on a more aggressive 50 bps hike have come off the table.Major central banks have a tricky path to navigate since high inflation calls for tighter monetary policies while oil prices above $100 could hurt consumption and economic growth going forward. ECB chief economist Philip Lane has told fellow policymakers that the Ukraine conflict may reduce the euro zone’s economic output by 0.3%-0.4% this year, four people close to the matter told Reuters on Friday.”It becomes very tricky for them to navigate, especially the ECB, whereas for the Fed this will be more an inflation issue than a growth issue, so they will continue to tighten – maybe not 50 bps but 25 bps – they don’t want to be the source of theatrics in this environment,” said Salman Ahmad, global head of macro at Fidelity International. A related graphic: US rates: https://fingfx.thomsonreuters.com/gfx/mkt/mopandjxqva/US%20rates.JPG More