As part of the sixth tranche of sanctions towards Russia following their invasion of Ukraine, Brussels announced earlier this morning that the EU would ban the importation of Russian oil in what Ursula von der Leyen called a “orderly fashion”. This four-step plan will involve crude oil being phased out within six months and refined products by the end of 2022. Attention now is turned to what Russia will do in response to Brussels’ latest move – and there are concerns being raised about whether Moscow could further cut supplies. Such an immediate reduction in supplies could potentially result in the EU having to impose industrial rationing, in what is alarmingly evocative of the three-day week of 1973-1974.Following these developments, crude oil is currently trading at just north of $105.3dpb representing a 2.9% rise over the 24-hour period. As mentioned yesterday, division amongst EU member states appears to be mounting vis-à-vis imposing measures on Russian oil imports. As such the EU may look to exempt Hungary and Slovakia instead and save giving the impression of conflict between member states. Hungary and Slovakia rely on Russian oil to a far greater extent than many other members and are thus less inclined to adopt an embargo. While the former imports 58% of their crude oil from Russia, the latter imports 96%. In contrast, in 2021 Germany received 35% of its crude from Russia, though this has now dropped to 12% following developments in Ukraine.
‘The Great Resignation’
Data from the states indicates that 4.5m workers in America left their jobs in March – a new record in the US labour market. The figures also indicate that there were some 11.5m jobs vacancies in March meaning that there was an average of 1.9 jobs per unemployed worker in the States – a substantial increase from the pandemic where the figure stood at 1.2. Behind these data points is what analysts and commentators are calling ‘the Great Resignation’ which describes how many workers (particularly low-income) are jumping between jobs in search of higher wages. Indeed, just last month data from Gartner suggested that over 70% technology workers were seeking to find a new employer – with factors such as employee benefits and work-life balance becoming more salient considerations when looking for new work. This dynamic of a high level of job vacancies and an unemployment level of 3.6% means that the US labour market is edging closer to what economists consider to be ‘full employment’ – which will likely lead to higher wages as employers compete for workers in a tight market, exacerbating inflation. As such the US government announced yesterday that immigrant work visas which were expiring or expired would be extended 1.5 years.
Duma Avoids Default
Moscow has avoided defaulting on its sovereign debt after it was able to make a $650m USD denominated payment ahead of a deadline later today. The 4th May marked the deadline of a 30-day grace period which came about after the Credit Derivatives Determination Committee rejected an interest payment (on a portion of Moscow’s $40bn sovereign debt) because Russia attempted to pay in rubles. Had Moscow missed this deadline, it would have been first time since 1918 that the country defaulted on foreign owned debt.
Concerning a Russian default, the IMF’s managing director, Kristalina Georgieva stated that is not ‘improbable’ given that while they have sufficient funds to service their debt, they cannot access these funds. Georgieva did however state that such a default would not trigger a wider global financial crisis given that the total exposure of banks to Moscow was $120bn – a figure which she said was “not systematically relevant”. Indeed, according to the Financial Times, international investors hold some $20bn in Russian foreign currency bonds. And in recent years, Russia has shrunk its USD holdings from 45% of its foreign currency reserves in 2013, to just 16.4% by 2021. While Russia’s debt to GDP stands at a low 17%, following Fitch’s downgrading of Russian sovereign debt to junk status it will now cost Moscow an increasing amount to service their debt and meeting USD denominated debt repayments will remain challenging given their inability to access much of their foreign currency holdings.
More confirmation this morning, if any were needed, that prices are on the rise. The British Retail Consortium reported year on year price growth of retail products of 2.7%. This is up from 2.1% growth in March and is the highest rate of growth since 2011. Unsurprisingly, their members are blaming energy prices and logistical problems on the hikes.
Have a great day.