A financial nuclear weapon

Delivered on By Justin Pyvis

Good morning! It was all about Russia and Ukraine over the weekend, after the former launched a full-scale invasion in an apparent attempt to capture the capital of Kyiv.

But other than the invasion itself and Ukraine’s valiant resistance, perhaps the most significant event came from Germany, which emerged from its slumber by sending lethal weapons and other supplies directly to Ukraine just a day after saying it wouldn’t (Germany’s previous contribution was 5,000 helmets that arrived over a month late).

The change in Germany’s attitude was a big deal – it’s the first time it has broken from its policy of pacifism since WW2. Germany will also more than double its annual military spending until it reaches at least 2% of gross domestic product by 2024, with Chancellor Olaf Scholz declaring “President Putin created a new reality with his invasion of Ukraine. This new reality requires a clear response. We have given it.”

Having initially held out, Germany also agreed to provide support to restrict access to the SWIFT global banking system for Russia, which we cover a bit more in today’s Food for thought below.

Reading the tea leaves

Daily % change







AU Bond



US Bond









Brent (bbl)



Gold (oz)



Iron ore (t)









Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

The US S&P500 added +2.24% on Friday after sanctions on Russia stopped short of curbing energy exports. President Joe Biden’s Deputy National Security Advisor Daleep Singh explicitly stated that “none of the measures are designed to disrupt the flow of energy to global markets”. Brent crude lost some of its earlier gains while gas prices dropped more than 30% in the UK and continental Europe.

Locally, the ASX200 eked out a small gain of +0.10% but for the week as a whole was down -3.1%, its largest loss since late 2020. A big gainer on Friday was the tech sector which surged +8.14% following a positive earnings report from Afterpay’s owner Block, sending the payment company’s shares soaring +32.5%.

Food for thought

The Russian invasion. Click the map to view a larger version.
The Russian invasion. Click the map to view a larger version. Source

As Russian troops closed in on Kyiv (see the map above), Western leaders ratcheted up sanctions on Russia and increased aid in the form of defensive weapons, including but not limited to:

  • $US350 million worth of weapons from the US, including Javelin anti-tank missiles, anti-aircraft systems and body armour.
  • 1,000 anti-tank grenade launchers, 500 Stinger surface-to-air missiles, 14 armoured vehicles and 10,000 tonnes of fuel from Germany.
  • 50 Panzerfaust-3 anti-tank weapons and 400 rockets from the Netherlands.
  • 5,000 anti-tank launchers, 5,000 helmets and body armour, and 135,000 ration packs from Sweden – its first shipment of lethal aid since the Soviet invasion of Finland in 1939.
  • A further deployment of forces to eastern Europe by NATO “to respond quickly to any contingency”.

But perhaps the most significant development was an agreement from American and European leaders to ban Russian banks from the international payments system known as SWIFT. The US and its allies will also freeze the assets of Russia’s central bank – which holds over $US630 billion in foreign currency reserves – limiting its ability to support the local currency.

If the SWIFT ban targets Russia’s largest banks (as opposed to the smaller, already-sanctioned banks) it will likely have serious short-run economic implications for Russia and many European economies. France’s Finance Minister Bruno Le Maire described it as a “financial nuclear weapon. When you have a nuclear weapon in your hands, you think before using it”.

According to Nikolai Zhuravlev, vice speaker of Russia’s upper house of parliament:

“If Russia is disconnected from SWIFT, then we will not receive [foreign] currency, but buyers, European countries in the first place, will not receive our goods.”

The UK had been calling for such a move last week but was rebuffed by a few holdouts in the EU, including Germany, which appeared to have grossly underestimated the risks of conflict with Russia.

That complacency was perhaps best exemplified by the fact that despite weeks of warnings of an invasion from the so-called “Five Eyes”, Germany’s chief spy still managed to get himself stuck in Ukraine when Russian troops invaded, forcing him “to travel by road from Kyiv to the Polish border, which he crossed only on Friday after a slow drive alongside thousands of refugees trying to flee the fighting”.

But that was last week. The German government is now belatedly pushing back against Russia, a significant turn that might not have been anticipated by President Vladimir Putin. Cutting its access to SWIFT is a big deal, and while Russia could route payments via China or use its own version called SPFS (created after it invaded Crimea), doing so wouldn’t be smooth sailing.

That means Russia – whose government depends on energy exports for ~40% of its revenue – along with nations that have strong trade links to Russia such as Germany (40% of its gas comes from Russia), could soon encounter significant economic pain.

Chewing the fat

Bits and bytes

⚔️ Australia’s government will “provide [Ukraine] whatever support we can for lethal aid through our NATO partners, particularly the United States and the United Kingdom”.

🚢 Turkey’s Foreign Minister Mevlüt Çavuşoğlu said: “We have decided that the situation in Ukraine has turned into a war. We will be transparently applying the provisions of Montreaux,” a move which would block much of the Russian Navy from the Black Sea.

☢️ President Vladimir Putin put his nuclear deterrence forces into high alert, attributing the move to “aggressive statements” from the West.

💸 “Russia’s 22 richest individuals saw their net worths plunge by a collective $US39 billion in less than 24 hours after their country invaded Ukraine.”

🐍 13 Ukrainian soldiers killed defending Snake Island in the Black Sea were given the posthumous title “Hero of Ukraine” after they refused to surrender, instead broadcasting “Russian warship, go to hell.” Subsequent reports hold hopes that they may still be alive.

🙄 The Taliban called on Russia and Ukraine to “resolve the crisis through dialogue and peaceful means”.

⚰️ According to the UK’s Defence Secretary Ben Wallace, the Russian government might be using mobile crematoriums “to follow troops around the battlefield”, as a “way to cover up loss”.

⚽ The Champions League final was moved from Saint Petersburg to Paris, while Chelsea’s Russian oligarch owner Abramovich was forced to give up control of his club.

🏎️ The F1 Russia Grand Prix was cancelled because “the current circumstances” made it “impossible”.

🙏 Kosovo formally asked the US for a permanent military base and to “speed up its integration into NATO”.

🛢️ A Georgian bulker was asked by a Russian vessel for fuel, to which it responded: “Russian ship, go f*** yourself. You can row to shore.”

⛈️ Brisbane was quite literally underwater yesterday but thankfully Defence Minister Peter Dutton was right on it – he set up a GoFundMe page for flood victims…

📈 US core PCE inflation, the Fed’s preferred metric, rose 5.2% in January – the biggest increase since April 1983.

🌲 Researchers constructed the world’s largest human family tree, tracing the genomes from 215 populations scattered across the world back hundreds of thousands of years.

🐻 Hank the Tank is actually three extremely large bears “responsible for more than 150 incident reports in the region straddling Northern California and Nevada, including a break-in at a residence in the Tahoe Keys neighbourhood last week”.

🥝 Couldn’t possibly be the virus everyone’s talking about: Anti-vaccine protesters in New Zealand were “seen wearing hats made of tinfoil at the Parliament protest after the rise of a theory that sickness was because of the Government using radiation as a weapon”.

🎰 Victorians lost $A251 million on pokies in December 2021, “the highest monthly loss in the state since records began”.

👩‍⚖️ US President Joe Biden nominated federal appeals court Judge Ketanji Brown Jackson, the first Black woman, to the US Supreme Court.

💉 For males aged 12-39 years, extending the interval between mRNA vaccination from 3 weeks to 8 weeks “may reduce the risk of myocarditis, a type of heart inflammation”.

🥛 Well, with inflation causing milk prices to rise… “A woman in Atlanta says she has quit her job in order to pump enough breast milk to feed her bodybuilding boyfriend every two hours”.

📉 “A career-low 37% of Americans approve of President Biden’s job performance, with 55% disapproving.”