Worst of both worlds

Delivered on By Justin Pyvis

Good morning! John Hopkins economist Steven Hanke estimated that inflation in Russia is probably running at around 70% annually. Since 1 January 2022, the Russian ruble “has depreciated by as much as 47.33% against the USD”, which combined with the latest tranche of sanctions appears to be causing a run on Russian banks:

Russians were yesterday racing to cashpoints and there were reports of the machines running out of banknotes. Russian economist Vladislav Zhukovskiy said “panic has started”.

“All over the country there are queues at ATMs to withdraw money. Banks are selling the dollar at 100 to 120 roubles! Where are [central bank chief] Elvira Nabiullina and [Prime Minister] Mikhail Mishustin?”

As a result, yesterday the Bank of Russia was forced to more than double its cash rate from 9.5% to 20%, freeze sales on the Moscow Exchange, ban brokers from selling securities on behalf of foreigners and order companies to sell 80% of their foreign currency reserves.

Regardless of what eventuates in Ukraine, Russia’s President Vladimir Putin has created an economic mess from which he may not survive.

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 -1.07% with losses being driven by financials and real estate after sanctions against Russia were escalated over the weekend, especially in the financial sphere (see yesterday’s Wrap for more on that).

Locally, the ASX200 gained +0.73% driven primarily by gains to the materials (+2.99%) and energy (+1.35%) sectors as commodities prices continued to perform well on fears of Russian sanctions.

It’s not just energy, either – Ukraine and Russia mine ~6.5% of the world’s iron ore, with large steelmakers such as Japan’s Nippon Steel already “planning to make up any shortfall by buying more of the steel-making ingredient from alternative sources in Brazil and Australia”, helping to support iron ore prices.

Food for thought

Rising prices and falling activity has put the Kiwi economy in a spot of bother.
Rising prices and falling activity has put the Kiwi economy in a spot of bother. Source

The “Worst of both worlds” is what ANZ titled its latest New Zealand Business Outlook, which worries that the Kiwis might be entering a period of stagflation, defined as declining economic activity along with rising inflation and unemployment (although the latter has not materialised):

“The intense stage of Omicron will pass quite quickly. But both before and after this outbreak, firms face skyrocketing costs, extreme labour shortages, and shipping disruptions that continue to worsen. And on the demand side, households are facing higher interest rates, falling house prices, and a vicious increase in the cost of living.

All up, 2022 is shaping up to be a challenging year economically, and getting on top of super-charged inflation without an outright recession is looking increasingly difficult. But with CPI inflation heading well over 6% the RBNZ has no choice but keep right on hiking. And now global geopolitical developments threaten yet more imported inflation via energy markets. Buckle up.”

New Zealand’s policymakers appear to be in a situation where because they allowed the economy to run too hot for too long, even if interest rate relief were needed due to, say, a European war or a collapse in domestic activity, the central bank may still need to tighten monetary policy – even if it means risking a recession.

Chewing the fat

Bits and bytes

🕊️ Peace talks between Russian and Ukrainian officials did not reach a resolution, with a second round to be convened at some point.

💰 Ukraine’s President Volodymyr Zelenskyy announced that Ukranian soldiers will be paid the equivalent of $US3,300 a month, more than 6x the average income: “Not just in order to say ‘Thank you’, but to show how truly indebted Ukraine is to them.”

☢️ Belarus' government passed a constitutional referendum revoking its non-nuclear status, “paving the way for Russian nuclear weapons in the country”.

🗾 Former Prime Minister Shinzo Abe said Japan “should not treat as a taboo discussions on the reality of how the world is kept safe”, including the possibility of a “nuclear-sharing” programme.

🛢️ BP will take a writedown of up to $US25 billion after announcing plans to dump its shares in Russian oil giant Rosneft.

💸 The world’s largest sovereign wealth fund, Norway’s Norges Bank Investment Management, said it would liquidate all of its Russian assets (believed to be worth ~$US2.8 billion).

🚜 They make them differently in Ukraine: A Ukrainian farmer was filmed towing a Russian tank away with his tractor as his mates watched on and had a good laugh.

✈️ The world’s largest aircraft, the Antonov AN-225, was destroyed during the Russian invasion of Ukraine.

📡 Elon Musk said that SpaceX’s Starlink internet satellites are active in Ukraine, with “More terminals en route.”

⚽ After initially electing not to ban Russia from competing, FIFA and UEFA agreed to suspend the nation indefinitely, effectively kicking it out of the 2022 World Cup in Qatar.

🚀 European countries agreed to send fighter jets to Ukraine yesterday and they were “Flying in Ukraine skies within the hour.”

🙏 Ukraine’s President Zelenskyy signed a formal request to join the EU, asking for immediate membership under a special provision.

📜 According to a new poll, the majority of Finns now want to join NATO, up from just 30% in January.

⚠️ Ukraine’s UN envoy Sirgiy Kyslytsya delivered a message to Putin: “This war was not provoked. It was chosen by someone right now that is sitting in the bunker. We know what happened to the person who sat in the bunker in Berlin, in May, 1945.”

❌ Two Russian billionaires, Mikhail Fridman and Oleg Deripaska, spoke out against Putin’s war, with one calling for an end to the “bloodshed” and another writing that “war can never be the answer”.

⛈️ Brisbane recorded its wettest 7-day and 3-day periods since the mid-1800s when records began.

🌊 Flooding also hit northern NSW in what is being described as a “natural disaster of unprecedented proportions”.

🦟 Rain brings mosquitoes and their diseases, with cases of the Kokobera virus, Japanese encephalitis, West Nile and Murray Valley encephalitis increasingly being detected in south-east Australia.

🧪 If you live in Western Australia be sure to claim the 5 free RATs being offered by the state government.

🛒 Australia’s retail sales rebounded in January, rising 1.8% after the worst of the Omicron wave passed over the east coast.

🗳️ As the federal election approaches the incumbent Liberal-Nationals (35%) still trail the opposition Labor Party (41%), according the latest Newspoll. ScoMo remains preferred PM (42%), with Albanese at 40%.

🥝 New Zealand brought forward its border reopening for Kiwi citizens. From 2 March travellers from Australia will no longer need to self-isolate and from 4 March all Kiwis can return.

📈 Inflation in Spain hit 7.5% in February, well above expectations and the fastest rate of increase since records started in 1997.

🦗 Catch of the year? New Zealand’s Will Young took a screamer on the boundary to dismiss South Africa’s Jansen.