Broad spillover effects

Delivered on By Justin Pyvis

Good morning! The rain continued to come down on the east coast yesterday with tens of thousands of Sydneysiders ordered to evacuate. The latest rain storm – the second in the span of less than a week – meant that as of 9:00am yesterday Sydney had officially recorded its wettest start to any year, notching up “821.6mm so far in 2022, beating the previous record of 782.2mm in 1956”.

Elsewhere, Queensland’s government appointed Major General Jake Ellwood to oversee what looks set to be a long and expensive clean-up, temporary relocation and rebuilding effort. Over 15,000 property damage assessments have already been conducted across the state.

As with last week’s floods, stay safe and stay dry! 💪☂️

Sydney is experiencing its wettest start to a year on record.
Sydney is experiencing its wettest start to a year on record. Source

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.

At the time of writing the US S&P500 was down -0.07%, although volatility and uncertainty have been the name of the game today with the index at various times down as much as -1% and up nearly +2%.

The notable gainer today has been energy (+2.08%), which rallied after the US and UK decided to go it alone by banning Russian oil imports, sending crude prices higher. Neither the US nor UK are heavily reliant on Russian oil imports at 8% and 6%, respectively, but the ban will be felt at the margin and the transition away won’t be without cost for consumers.

Locally, the ASX200 sank -0.83% due to falls in energy (-3.58%) and materials (-3.28%) after German chancellor Olaf Scholz’s all but ruled out sanctions on Russian energy, causing oil prices to fall:

“At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens.”

Scholz added that any change “cannot be done overnight”, which “is why it is a conscious decision on our part to continue the activities of business enterprises in the area of energy supply with Russia”.

Food for thought

Russia's dollar debt has been sold off as default looms.
Russia's dollar debt has been sold off as default looms. Source

What do Russia, Lebanon and Venezuela have in common? All three have at some point seen their sovereign debt fall to the point where it’s almost worthless, with Russia (and Belarus) the latest where “a default as the most likely scenario”.

That’s according to Morgan Stanley, which notes that a default is “unlikely to be like a normal one, with Venezuela instead perhaps the most relevant comparison”.

Oil-rich Venezuela defaulted on its debt four years ago following the imposition of US sanctions.

Russia is almost certainly already in a deep recession and a default would only compound its woes, potentially triggering “broad spillover effects to sovereign debt in emerging markets around the world”, at least according to US economist Stephen Roach.

The Russian crisis and surging commodity prices also increases the prospects of stagflation – slowing activity with rising inflation – across much of the world, raising “the prospects of significantly higher interest rates”.

Thankfully the world’s central banks, including Australia’s RBA, tightened monetary policy over the past year to nip the pandemic stimulus-driven inflation in the bud, slowing asset price growth and keeping some powder dry in the event of another crisis…

Oh wait. 🙊

Chewing the fat

Bits and bytes

🛢️ Russia’s government “threatened to halt gas supplies through the Nord Stream 1 pipeline for the first time since the invasion of Ukraine”. Around 40% of the EU’s gas and 30% of its oil comes from Russia.

🤔 As the world clamours for energy sovereignty, the VIC Greens introduced “a Bill that would ban offshore drilling for fossil fuels like oil and gas in Victoria”. The Greens also oppose nuclear energy.

☢️ “The British government has asked its nuclear regulator to start the process for approving Rolls-Royce’s planned small-scale modular nuclear reactor, which policymakers hope will help cut dependence on fossil fuels and lower carbon emissions.”

🐚 “Shell apologised on Tuesday for buying Russian oil last week after it had said it would pull out of its Russian operations… and said it would phase out its involvement in all Russian hydrocarbons.”

💻 IBM has “suspended all business in Russia”, joining WeWork, Levi Strauss, Nissan, Deloitte, Ernst & Young, KPMG, PwC, Netflix, TikTok and many other companies in boycotting Russia from this week.

🛒 Australian consumer confidence increased by 0.9% last week “as the floods in southern Queensland and northern NSW receded, if only momentarily”. Inflation expectations remain elevated “at 5.2% as petrol prices reach a new high”.

👩‍💼 Australian business confidence and conditions “strengthened in February as the Omicron virus wave eased and the late 2021 momentum was regained”, and are now above the long-run average. The survey suggests that “cost pressures are increasingly being passed on to consumers”.

❌ The Australian government imposed sanctions on “an additional six senior Russian military commanders… [and] 10 people of strategic interest to Russia”, for being “propagandists and purveyors of disinformation, who are trying to legitimatise Russia’s unprovoked, unjustified invasion with false narratives such as the ‘de-Nazification’ of Ukraine”.

💰 The World Bank approved $US723 million in loans and grants for Ukraine and is working on another $US3 billion package.

😠 Russia surpassed Iran and North Korea as the most sanctioned nation in the world, after becoming “the target of 2,778 new sanctions, for a total of 5,530”.

👩‍💻 Samsung confirmed it was breached, with hackers making away with “almost 200 gigabytes of confidential data, including source code for various technologies and algorithms for biometric unlock operations”.

👻 According to the Property Council of Australia, Perth’s “office occupancy index was last month only 55% compared to pre-COVID levels”, due to “lockdown by policy… Instead of benefiting from learnings on the east, we are now experiencing a replication of the economic damage we sought to avoid.”

🦠 A new, not-yet peer reviewed study found that mild Omicron infections remain contagious for 6 days on average, with around 25% of people still shedding live virus for over 8 days.

✈️ Qantas CEO Alan Joyce said “if they [oil prices] stay at these levels, airfares are going to have to go up and we’re going to have to pass them on”. He indicated that for every $US4 above an oil price of $US120 per barrel, airfares would rise 1%.

🦗 The first test between Australia and Pakistan – the last time the two nations met in Pakistan was in 1998 – ended in a draw after the flat Rawalpindi pitch offered nothing to the bowlers.

🍔 McDonald’s temporarily closed all 850 of its stores in Russia due to “the needless human suffering unfolding in Ukraine”.