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march 9, 2022 - UR war

Oil sinks more than 10% amid wild swings as traders weigh bans

Stocks Surge Most Since 2020, Oil Sinks With Bonds: Markets Wrap

  • Oil sinks more than 10% amid wild swings as traders weigh bans
  • Dollar weakens for first time in five days, Treasuries drop By Stephen Kirkland and Vildana Hajric

(Bloomberg) -- Global stocks staged a ferocious rebound from the war-induced rout, with European equities notching the biggest rally since the pandemic bottom in March 2020 and U.S. shares jumping the most since November of that year. Oil sank more than 10% and Treasuries dropped.  
Dip buyers powered the S&P 500 up as much as 2.9% and Germany’s DAX Index to an eye-popping 7.9% surge on speculation that two weeks of selling amply reflected the global economic impact of escalating sanctions on Russia. Oil slid below MathjaxDialect1732281217EquationNumber1110 a barrel in New York and the 10-year Treasury yield climbed back above $1.9\%.$

Ukraine Update: Russia, Ukraine Trade Warnings Over Gas Flows

By Bloomberg News
(Bloomberg)

-- President Volodymyr Zelenskiy repeated he’s willing to consider some compromises to end the fighting in Ukraine, a stance he’s held since the war broke out, while adding he would not allow the “betrayal” of his country.

Zelenskiy told Bild TV “the other side must also be willing to make compromises -- that’s why they are called compromises.” “We can’t talk about the details yet.” 
He added there had been no direct contact with Russian President Vladimir Putin and “only after the direct talks between the two presidents can we end this war.”

Russia Headed for One of Biggest Inflation Shocks in Decades (1)

Inflation soars 2.2\% in just a week, most since at least 2008
Businesses, consumers start to feel impact of ruble collapseBy Bloomberg News
(Bloomberg) -- 

Russia is headed for one of its biggest inflation spikes this century after waves of sanctions over the invasion of Ukraine touched off the collapse of the ruble and disrupted trade.
In the first full week since the military offensive began late in February, prices for new domestic cars soared over 17% and the cost of television sets jumped 15%. Some medicines and vegetables became 5% to 7% more expensive in the seven days ending March 4. 

Overall, inflation in the period reached $2.2%,$ according to a report by the Federal Statistics Service on Wednesday, the sharpest weekly increase since it started tracking the data in 2008 and more than double the previous record. On an annual basis, price growth was $10.4%$ as of March 4, according to the Economy Ministry.

Citi’s Sale of Russian Consumer Unit Stalls as War Escalates

It has largest presence of any U.S. bank, with 3,000 workers
Citi has vowed to help its corporate clients in Russia

By Jenny Surane, Alexandre Rajbhandari and Archana Narayanan
(Bloomberg) -- Citigroup Inc., in the midst of overhauling its businesses in Russia when the country went to war, has seen efforts to sell a consumer-banking unit there stall and is helping some employees transfer abroad.

The moves show how Vladimir Putin’s invasion of Ukraine has quickly made the future less certain for many of Citigroup’s roughly 3,000 workers in Russia -- by far the largest presence of any major U.S. bank in the country.
The shifting circumstances have temporarily upended the push to dispose of the consumer-banking unit, according to a person familiar with the matter.

Excited About a Digital Dollar? Not So Fast: Darrell Duffie

The privacy technology isn’t ready. Meanwhile, there’s a lot the U.S. can do to improve the existing payment system.By Darrell Duffie
(Bloomberg Opinion)
-- President Joe Biden’s effort to craft a U.S. strategy for cryptocurrencies has highlighted a big question: Should the Federal Reserve enter the fray by issuing a digital version of the national currency, as China and others have already done?

Although some are urging the U.S. to act, there’s really no need to rush that decision. The digital-currency technology required to safeguard Americans’ privacy will take years to develop. Meanwhile, policy makers can do a lot to improve the payment system by other means.

So far, the main opposition to a U.S. digital currency has come from the banking industry. Some argue that each additional digital dollar issued by the Fed would mean one less dollar of bank deposits. This, in turn, would sharply reduce the lending power required to support economic growth.

Russia Brain Drain Will Be Hard for Putin to Stop: Stephen Mihm

History teaches that the first citizens to flee authoritarian crackdowns are the best and brightest, and that locking them in is a catastrophe.By Stephen Mihm
(Bloomberg Opinion) -- 

As President Vladimir Putin was launching his battle to restore Russia’s former glory by leveling Ukraine, something as important to his country’s future had already begun to play out at home. Russia’s most valuable asset — its young people — were indicating they want out. 

A poll taken before the Feb. 24 invasion found that 43% of Russians between the ages of 18 and 24 want to leave the country for good. Of those, 44% cited the economic situation as the primary reason for departing. That sentiment will surely be strengthened by the impact of global sanctions and domestic crackdowns.

As growing numbers of Russians contemplate leaving their country, Putin will face a predicament familiar to his Communist predecessors and other authoritarians. China is seeing financial professionals flee Hong Kong in response to its crackdowns, a reminder that repressing citizens is one thing; keeping them from voting with their feet is another. That’s a challenge Putin will find difficult to win

Chinese Yuan Implies Additional Dollar-Ruble Downside

Damian Sassower, the primary analyst for this report.
Damian Sassower

Team: Strategy

BI Chief EM Credit Strategist

China Delivers Clarity With Dollar-Ruble in Complete Disarray
International sanctions have eradicated liquidity in dollar-ruble foreign exchange, rendering the official spot price meaningless for market valuations. From a mark-to-market perspective, dollar investors are more likely to value Russian assets using more liquid cross-rates, such as ruble-yuan, which implies an additional 10% haircut to spot. (03/09/22)

  1. Yuan-Ruble Implies 10% of Dollar Downside Dollar-Ruble Official vs. Implied Spot FX Rate

Source: Bloomberg Intelligence
DataChart
Market practitioners can look to competing currencies for a more accurate read on dollar-ruble, with the yuan-ruble exchange rate implying a 10% haircut to the official spot price. Trading in foreign exchange resumed on the Moscow Exchange for the first time since March 5, yet liquidity in dollar-ruble remains exceptionally tight, with the indicative bid-offer spread rising to 7.4% of the ask price. We use the more liquid yuan-ruble exchange rate to arrive at a fair-value estimate of dollar-ruble, and find it should be trading at 133.66, a 10% haircut to the official spot price of 120.40.

China has historically served as a trade partner of last resort for sanctioned entities, and has reaffirmed its "rock solid" relationship with Russia. The yuan-ruble exchange rate has plunged 44.2% this year to an all-time low of 21.16. (03/09/22)

  1. Russia May Trade More in Yuan Instead of DollarContributing Analysts Stephen Chiu (BI FX and Rates Strategist) Read Research Note: Yuan May Be a Safe Haven in Russia-Ukraine Warfare Currency Usage in China-Russia Bilateral Trades

Source: The Central Bank of Russian Federation; UBS; Bloomberg Intelligence
Russia may continue to rely less on the U.S. dollar in global trades, in order to be less prone to sanctions from the U.S. and major economies on the SWIFT system. In fact, this has been the case since at least Russia's annexation of Crimea in 2014, with the latest Russian invasion of Ukraine only likely to extend this trend. Apart from relying more on SPFS, Russia's own SWIFT-equivalent system, another initiative may be to transact more in yuan instead of the dollar or even the euro in the bilateral trades with China, with the yuan settlement and clearing to be done via China's own CIPS.

Dollar receipts accounted for 97% of Russia's total exports to China in 2014 but fell to 37% as of end 3Q21, while that of the euro rose from 1% to 48% during the same period, with the yuan usage being unidentified in Russia's data. (03/02/22)

  1. Foreign Creditors Cast Shade on Russian Debt Read Research Note: Russian Defaults May Rise as Sanctions Bite the Bear Russia Local Debt: Foreign Holdings vs. YTW

Source: Bloomberg Intelligence
DataChart
Borrowing costs continue to rise in Russia as sanctions force offshore creditors to liquidate holdings in local-government debt. Since peaking at 35% in February 2020, non-resident holdings of Russian local debt stood at just 19% in January, and selling should accelerate, as Russia has formally banned coupon payments to foreign owners of ruble-denominated local-government debt. As of end-January, foreign investors held nearly $30 billion of Russian federal loan obligations (OFZs)

Russia hiked its key interest rate by an unprecedented 1,050 bps to 20% from 9.5% on the last day of February, triggering a massive upward shift in the local yield curve. Average yield-to-worst for the Bloomberg Russia Local Currency Total Return Index has surged by 590 bps this year to 14.2%, and is just 347 bps off its December 2014 high. (03/02/22)