Economy

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyRussia’s invasion of Ukraine has thrown policymakers, companies and markets into an inherently uncertain and unsettling world.The temptation for investors is to try to figure out what will happen next on the ground and react accordingly — understandable but very difficult to get right given the multi-faceted forces that have been unleashed by the turmoil, and those that are yet to come.The invasion not only has geopolitical, military and diplomatic repercussions but also economic, financial, social and institutional. They are felt across global, regional, national and individual levels. They are certain to interact with each other in variable ways that are hard to predict.Rather than base portfolios on shaky specifications of inherently uncertain outcomes, a better approach could well be to formulate more flexible responses based on the following six factors.First, even up to the eve of the invasion, many viewed what is happening today as highly unlikely. Few had a playbook prepared, and even fewer were sufficiently “self-insured” against the direct effects and negative spillovers.Second, we are early in the process — such large-scale military events are hard to reverse quickly. Even if this were possible, there is still a series of additional sanctions and counter-sanctions in the pipeline. And it would be naive to dismiss the possibility of other authoritarian regimes trying to exploit a situation in which the west is scrambling to respond.Third, just like their military counterparts, economic policymakers in the west lack the traditional flexibility to respond to the crisis, including the typical first movers in the central banking community. It is extremely rare for the Federal Reserve and the European Central Bank to start confronting a major new crisis with interest rates floored at or below zero and with central bank balance sheets already so bloated. In such a situation, “break the glass” emergency measures risk a much higher probability of collateral damage, unintended consequences, and more limited effectiveness.Fourth, while the hardest hit are those countries and companies with direct links to Russia and Ukraine, the economic effects are much broader.Stagflationary economic forces have already been released. The vast majority of countries and companies around the world are likely to experience some fall in demand and higher input costs.Fifth, this comes at a time when inflation is already a problem, risking a further de-anchoring of inflationary expectations, especially with the world’s most powerful and influential central bank, the Federal Reserve, already behind the curve in dealing with rising prices. Having repeatedly failed to exploit orderly policy windows, it no longer has “first best” responses available.Finally, flows and liquidity are added complexities for investors. Much of what happens in financial markets over the next few days is a function of the flows of funds, the depth of liquidity and the strength of the conditioning of investors to “buy the dip”.This increases the scope for intraday volatility and contagion whereby even the most solid companies are temporarily trading with unusually high correlation to the market as a whole. The most interesting tug of war will play out between, on the one hand, “pain trades” that force the sale of securities regardless of market conditions and, on the other, those buyers seeking to exploit what they regard as a rapidly reversible drawdown in market pricing.As initial conditions inevitably differ from country to country, from company to company, and from investor to investor, the specific implications of these six factors will differ in individual cases. For example, they will entail “do nothing” for some while others will need to scramble to realign suddenly unbalanced portfolios.What will be common, however, is the importance of financial resilience that allows investors to retain as much optionality as possible for the time being. Rather than reflecting indecisiveness, it is an important recognition of an extremely uncertain situation that is some distance from resolution. Eventually, the time will come for such optionality to give way to the need to focus on the attractive new possibilities to reposition portfolios as developments on the ground become a lot less unpredictable. More

It was not immediately clear which individuals or entities would be targeted by such sanctions. The officials told Reuters Tokyo will coordinate with other members of the Group of Seven industrial powers.A Foreign Ministry spokesman declined comment. The office of Prime Minister Fumio Kishida could not immediately be reached for comment.The U.S. sanctions over Thursday’s invasion include 24 Belarusian individuals and entities, the U.S. Treasury Department said.Japan has announced sanctions on Russia over the invasion, with Kishida terming Moscow’s moves an unacceptable violation of Ukrainian sovereignty and international law.Russian troops were advancing toward the capital Kyiv on Friday even as Russia and Ukraine signalled an openness to negotiations, in the wake of the invasion from the north,east and south, an attack that threatens to upendEurope’s post-Cold War order. More

WASHINGTON — The United States and Europe moved on Friday to personally penalize President Vladimir V. Putin of Russia for his invasion of Ukraine, imposing sanctions aimed at freezing his wealth while continuing to try to cripple his military and economic capabilities through other new restrictions.White House officials said that President Biden intended to impose sanctions and freeze the assets of Mr. Putin, along with Sergey V. Lavrov, his foreign minister. Other Russian national security officials will also be subject to the sanctions, and the United States plans to impose a travel ban to restrict the movement of Russia’s top leaders.The decisions align the United States with its European allies, whose governments made similar moves earlier in the day.“Treasury is continuing to inflict costs on the Russian Federation and President Putin for their brutal and unprovoked assault on the people of Ukraine,” Treasury Secretary Janet L. Yellen said in a statement announcing the sanctions.European leaders met into the early hours of Friday to hammer out an agreement over a new set of sanctions aimed more broadly at the Russian economy and at Mr. Putin himself, as his troops advanced in their invasion of Ukraine.One of the decisions was to freeze the assets of Mr. Putin and Mr. Lavrov, but not to impose a travel ban on them, according to three European Union diplomats and officials familiar with the draft E.U. sanctions.The new American and European sanctions are a provocative step given how rarely governments, including the United States, take aim at foreign leaders. Yet they may prove largely symbolic given that the status of Mr. Putin’s financial holdings has been cloaked in mystery and his money is not believed to be held in the United States.Jen Psaki, the White House press secretary, said that imposing sanctions directly on Mr. Putin “sends a clear message about the strength of the opposition to the actions by President Putin and the direction in his leadership of the Russian military.”Speaking to reporters on Friday, Ms. Psaki said the decision had been made in the past 24 hours after consultation with European leaders. She would not comment on what impact she believed the sanctions would have on Mr. Putin. But she underscored that they were a demonstration of trans-Atlantic unity in opposition to his actions.While the United States has imposed sanctions on and frozen the assets of some Russian oligarchs, targeting Mr. Putin directly was a significant escalation. It puts him in similar company with Presidents Bashar al-Assad of Syria and Aleksandr G. Lukashenko of Belarus, both of whom have been subject to personal sanctions by the U.S. government.Adam M. Smith, a former Treasury Department official who is now a partner at the law firm Gibson, Dunn & Crutcher, said placing sanctions on Mr. Putin sent a significant message given that the United States had never taken a similar action against such a powerful leader. However, he said that it was unlikely that the sanctions would affect Mr. Putin’s wealth or change his calculus in Ukraine.“I don’t think Putin is really going to lose much sleep on being sanctioned,” Mr. Smith said.The personal sanctions add to the growing list of restrictions that the Biden administration, in coordination with Europe, has rolled out. The United States has placed sanctions on major Russian financial institutions and the nation’s sovereign debt, and on Thursday, it took steps to prevent Russia from gaining access to American technology critical for its military, aerospace industry and overall economy.But the attempt to punish Mr. Putin has exposed the degree to which many European countries rely on Russia for energy, grains and other products. A package of penalties, which European leaders described as unprecedented in terms of its size and reach, was difficult to forge consensus on, even as Russian forces approached Kyiv, Ukraine’s capital.Europe’s economies are deeply intertwined with Russia’s economy, and the more the European Union leans into Russian sanctions, the more its own members will also feel the pain. The toughest of sanctions could even derail the bloc’s tentative recovery from the recession induced by the coronavirus pandemic.That is why negotiators left off the table particularly difficult elements, such as imposing sanctions on oil and gas companies or banning Russia from SWIFT, the platform used to carry out global financial transactions on commodities including wheat. E.U. officials said one key reason for their reluctance to cut off Russia’s access to the platform was that Europe uses it to pay for the gas it buys from Russia.Experts said that the approved sanctions were tough and that the speed at which the European Union was moving was impressive. But some were critical of the leaders for not going further.President Volodymyr Zelensky of Ukraine was scathing in a statement posted on Facebook on Friday.“This morning, we are defending our state alone,” he said. “Like yesterday, the world’s most powerful forces are watching from afar. Did yesterday’s sanctions convince Russia? We hear in our sky and see on our earth this was not enough.”Understand Russia’s Attack on UkraineCard 1 of 7What is at the root of this invasion? More

The move allows financial dealings with civil servants at government institutions, even if those ministries are now overseen by Taliban members.WASHINGTON — The Biden administration moved on Friday to relax sanctions that have contributed to the collapse of Afghanistan’s economy since the Taliban takeover in August, issuing a measure that makes clear that people can lawfully engage in transactions with the Afghan government in most circumstances.The measure, known as a general license and announced by the Treasury Department’s Office of Foreign Assets Control, says that people can lawfully transfer money to civil servants in government agencies — including ministries now led by Taliban officials. The move covers transactions like taxes, fees, import duties and the purchase or receipt of permits, licenses or public utility services.In a statement, Wally Adeyemo, the deputy Treasury secretary, portrayed the move as part of a larger effort by the United States to not just support the flow of humanitarian aid to Afghanistan, but also to facilitate commercial and financial activity there that could allow the economy to function — without directly benefiting Islamist extremists.“In light of this dire crisis, it is essential that we address concerns that sanctions inhibit commercial and financial activity while we continue to deny financial resources to the Taliban, the Haqqani network and other malign actors,” he said.The measure appeared aimed at making it harder to blame the United States government’s sanctions for the unfolding economic disaster in Afghanistan. The economic situation is creating a humanitarian crisis, including widespread starvation, that is spurring a huge wave of migrants to leave the country.The malnutrition ward of the Indira Gandhi Children’s Hospital in Kabul last month.Jim Huylebroek for The New York TimesA senior Biden administration official, speaking on the condition of anonymity in a background briefing for reporters, cautioned that many other factors were contributing to the economic collapse in Afghanistan. Those include the abrupt cutoff of huge amounts of Western foreign aid that had paid for government salaries and infrastructure projects, as well as the exodus of technocrats and others with special expertise after the Taliban swept into control.In a statement describing the move, the Treasury Department also emphasized that theme.“While sanctions relief alone cannot reverse longstanding structural challenges and the flight of technocratic and government experts due to the Taliban’s mismanagement, it can ensure that sanctions do not prevent economic activity that the people of Afghanistan rely on to meet their most fundamental needs,” it said.The general license excludes doing business with any entity in which the Taliban or the Haqqani network owns a majority interest. It also does not permit payments related to luxury items or services.The Afghan central bank, known as Da Afghanistan Bank or D.A.B., is among the governing institutions that will face fewer obstacles under the measure. The central bank had formerly propped up the value of the Afghan currency by regularly auctioning United States dollars.That activity has ceased, and the value of the Afghan currency has plunged — making food too expensive for many poor Afghans to buy. At the same time, a currency shortage has led to limits on how much those Afghans who have bank accounts may withdraw from them.Many officials from the bank fled in August, and the Taliban has installed its own leaders to oversee it. But in the briefing, a senior administration official said the U.S. government had been exploring ideas for restarting some normal central bank activities if it can be made truly independent, with controls to prevent money laundering and third-party monitoring. The official said much of whether that could be done was in the hands of the Taliban.The notion of potentially trying to resuscitate Afghanistan’s central bank is in some tension with a move this month by the Biden administration regarding about $7 billion the central bank has deposited at the Federal Reserve Bank in New York, money whose fate has been a major focus since the Taliban takeover.When the government of Afghanistan dissolved, the bank made those funds unavailable for withdrawal. The Taliban have since claimed a right to them, while relatives of people killed in the Sept. 11 attacks are trying to seize the funds to pay off the Taliban’s default judgment debts to them from lawsuits they had brought against the Taliban, Al Qaeda and others.On Feb. 11, the Biden administration moved to split those funds in half — in a way that would potentially leave the bank decapitalized. Mr. Biden invoked emergency powers to try to move $3.5 billion into a fund that will be used for the benefit of the Afghan people. The administration left the remaining money for the Sept. 11 plaintiffs to continue pursuing in court.It will be up to a judge to decide whether those funds can be lawfully used to pay off the Taliban’s judgment debts, a question that raises several thorny and unresolved legal issues.The Treasury Department noted that nothing in the new general license “affects the property or interests in property of Da Afghanistan Bank that are protectively blocked” pursuant to Mr. Biden’s recent action. More

NEW YORK (Reuters) -U.S. stocks are drawing buyers after a recent tumble, but some investors believe buying the dip this time may be a far riskier bet than in the past as markets face geopolitical strife and a hawkish Federal Reserve.The benchmark S&P 500 has surged more than 6% from Thursday’s lows to close higher on the week, after investors swooped in following sharp declines on the heels of Russia’s invasion of Ukraine.On the surface, the swift rebound resembled past bounces the index has experienced in its more than 200% run over the last decade, when “buying the dip” proved a winning strategy.The S&P is down 8% year-to-date and confirmed it was in a correction by falling more than 10% from its record high earlier this week – its biggest decline since stocks lost nearly a third of their value in the COVID-19 selloff of March 2020 before doubling from their lows.Yet while bargain hunters over the last two years could count on the Fed’s historically loose monetary policy to offer stocks support, today they face heightened geopolitical uncertainty and a central bank that is expected to pull out the stops in its fight against inflation – starting with a widely anticipated rate increase in March.”Investors were trained to buy the dip because they had the backing of the Fed. But now you could make a case that this is one of the most significant geopolitical events for the last decade, and you don’t have the Fed in your corner,” said Burns McKinney, a senior portfolio manager at NFJ Investment Group.Anticipation of Fed tightening has weighed on markets in recent weeks, as investors price in around 165 points of interest rate increases by next February. Fed Chairman Jerome Powell said he expected to raise interest rates in March for the first time since 2018. [FEDWATCH]Others expect geopolitical tensions to continue plaguing markets, as the implications from the war in Ukraine become clearer.Kyle Bass, founder and chief investment officer of hedge fund Hayman Capital Management, believes investors still have not factored in all of the possible outcomes that could result from Russia’s invasion of Ukraine, including a prolonged conflict that weighs on global growth and sends inflation higher by pushing up commodity prices.”This is going to get worse before it gets better,” he told Reuters in a recent interview. “Asset managers don’t have these outcomes in their realm of possibilities.”Bass said investors should own assets that can hold value during inflationary times, such as commodities and real estate.McKinney is buying dividend-paying stocks that he expects to withstand future volatility in the market and moving some money into defense companies.In addition to the fast-moving situation in Ukraine, investors next week will be watching Friday’s non-farm payrolls data for February – the last such employment report the Fed will see before its monetary policy meeting in March.Though Ukraine remains in flux, those in favor of buying on weakness argue that stock declines from past geopolitical events have been short-lived. LPL Financial (NASDAQ:LPLA)’s study of 37 major geopolitical events since World War Two found that stocks were up an average of 11% one year later, provided a recession does not occur.Retail investors have been among the dip buyers, purchasing a net $1.5 billion on Thursday, data from Vanda (NASDAQ:VNDA) Research showed.BlackRock (NYSE:BLK) earlier this week added to its strategic overweight in equities, saying investors may be overestimating how hawkish central banks will need to be in their battle against inflation. JPMorgan (NYSE:JPM)’s analysts, meanwhile, argued that “initial volatility around rate liftoff didn’t last and equities made new all-time highs 2-4 quarters out.”Others, however, are taking a more dour view, as the markets price in Fed tightening in the face of soaring inflation.”We’re bearish,” analysts at BofA Global Research wrote in a recent note, saying they believe the “bull era of central bank excess, Wall St inflation, (and) globalization” is ending, to be replaced by a “bear era” of inflation and geopolitical isolationism. Charles Lemonides, portfolio manager of hedge fund ValueWorks LLC has been increasing his bets against some stocks, including semiconductor maker Broadcom (NASDAQ:AVGO) Inc and plant-based meat company Beyond Meat (NASDAQ:BYND) Inc, skeptical that markets will be able to sustain a rally in the face of a hawkish Fed.”The reality is that the market has had a huge run and inevitably you give back some of those gains,” he said. More

PARIS (Reuters) -Qatar Airways has asked a UK court to reinstate an order for 50 Airbus A321neo passenger jets that the European planemaker revoked as part of a bitter dispute over the partial grounding of larger A350s, a court filing showed on Friday.Failing that, the Gulf carrier is asking a UK judge to award the airline unquantified damages over the planemaker’s decision to withdraw what it described as a “unique” plane as it prepares to receive the 220-seat A321neo from February next year.Airbus declined comment on the filing.The claim is the latest salvo in a months-old contractual and safety dispute that has brought relations between two of the industry’s largest players to an all-time low.The two sides are at loggerheads over erosion to the painted surface and gaps in lightning protection on A350 jets.So far, the airline has said Qatar authorities have grounded 21 of its 53 A350s over safety concerns, prompting the airline to sue Airbus for more than $600 million as it prepares for an influx of visitors ahead of this year’s FIFA World Cup.In the new filing, Qatar Airways disclosed that a further A350 had been grounded on Feb. 13.Airbus has acknowledged quality problems but accused the airline of mislabelling them as safety woes to get compensation. European regulators have said the problems do not amount to an airworthiness issue on the jet, which is not grounded elsewhere.SEVERE DISRUPTIONAs the A350 row heated up, Airbus last month cancelled the order for A321neos, saying Qatar had breached a clause linking the two deals. Days later, Qatar placed a provisional order for at least 25 competing Boeing (NYSE:BA) 737 MAX. [L1N2U029N]Despite that, Friday’s filing sang the praises of the Airbus model, saying it had no available equivalent in a section designed to support its request to have the deal reinstated.Qatar also asked the division of London’s High Court to order Airbus not to try resell the A321neos, which are in high demand. Airbus is sold out until 2028 on that model and Qatar would otherwise face “severe disruption,” it said.Details of the airline’s claim emerged as Airbus was expected to issue a counter-claim in the A350 dispute. A spokesperson confirmed Airbus had filed documents but declined to provide details ahead of their publication.The planemaker has insisted in preliminary hearings that the A350 is safe to fly and suggested its own interests could be damaged if it were forced to go ahead and build the A321neos while waiting for the outcome of a potentially long spat. Even so, Airbus has been ordered to preserve the status quo until a hearing due in April. More

WASHINGTON (Reuters) – The White House asked Congress on Friday to approve $6.4 billion in aid to address the humanitarian and security crisis in Ukraine after Russia invaded the country this week, Biden administration and congressional aides said.”In a recent conversation with lawmakers, the administration identified the need for additional U.S. humanitarian, security, and economic assistance to Ukraine and Central European partners due to Russia’s unprovoked and unjustified invasion,” an official from the White House Office of Management and Budget said.The request included $2.9 billion in security and humanitarian assistance and $3.5 billion for the Department of Defense.Congressional aides said the administration had made the request on Friday at a briefing for staff from congressional leadership offices and relevant committees, including the appropriations committees that set spending.Congress, which is controlled by President Joe Biden’s fellow Democrats, would consider the $2.9 billion in funding for the State Department and USAID as an emergency bill, with funding for the Pentagon considered later, congressional aides said.The money would also cover the implementation and enforcement of the sanctions Biden is enacting to punish Russia for its aggression against Ukraine.Democratic Senator Patrick Leahy, who chairs the Senate Appropriations Committee, said he would work closely with the administration to address the crisis.”The United States government needs to provide the necessary resources to support our allies and assist the innocent people caught in the middle of this needless calamity,” he said in a statement.The newly requested funds would augment the $650 million in security assistance and $52 million in humanitarian assistance the United States has already committed to Ukraine over the past year, as well as the $1 billion sovereign loan guarantee announced last week.A Biden administration official said the conversation around funding needs would change as the situation on the ground evolves.Earlier on Friday, Democratic Senator Chris Coons, who chairs the Senate subcommittee that oversees foreign aid, said he would support $10 billion or more to address the crisis following Russia’s invasion of Ukraine.Departing from recent party divisions, both Biden’s fellow Democrats and opposition Republicans have expressed strong support for sharp increases in military and humanitarian aid for Ukraine, with some calling for passage of an emergency spending bill as soon as next week.Russian missiles pounded Kyiv on Friday, families cowered in shelters and authorities told residents to prepare Molotov cocktails to defend Ukraine’s capital from an assault that the mayor said had already begun with saboteurs in the city. More

“We are united with our international allies and partners to ensure Russia pays a severe economic and diplomatic price for its further invasion of Ukraine,” Treasury Secretary Janet Yellen said in statement.”If necessary, we are prepared to impose further costs on Russia for its appalling behavior on the world stage,” she said.The Treasury Department also will impose “full blocking sanctions” on state-owned Russian Direct Investment Fund, a White House spokesperson said in a tweet on Friday.The fund is a financial entity functioning as a sovereign wealth fund and designed to attract capital into high-growth sectors. More