Ukraine & Russia​​​​​​
In recent moments, there have been reports from Ukrainian officials that Russian troops are in the northern districts Kyiv and that they expect a tank columns will try to penetrate the centre of the capital.

Last night, several explosions hit Kyiv as President Zelensky called on his fellow citizens to defend Ukraine and the global community to commit to greater finical, military and humanitarian support. The Ukrainian government also ordered a general military mobilisation and prohibiting men aged between 18 and 60 from leaving Ukraine while Zelensky said that 137 Ukrainian citizens – both soldiers and civilians – were killed in the fighting.

The military in Ukraine state that the Russian force’s strategy is to encircle Kyiv while establishing a land corridor along the black sea from the separatist held areas of Donetsk ad Luhansk to Odessa and on to Transnistria (the pro-Kremlin breakaway region of Moldova) – effectively landlocking Ukraine. Russian Forces yesterday evening Chernobyl nuclear complex

The UN estimate that some 100,000 refugees have already left their homes to seek safety in boarding countries, while Poland has waived the requirement to quarantine for those coming in from Ukraine. Indeed, Lina Thomas-Greenfield, the US Ambassador to the UN stated that the conflict could lead to five million refugees from Eastern Ukraine.

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Sanctions​​​​​​
Yesterday involved various elements of the global community announcing further sanctions on the Russian Federation and Russian oligarchs. Such sanctions have so far been ineffectual at deterring or dissuading Putin’s aggression and thus there are calls from all sides of the political spectrum to go further, with some requesting that Russia is banned from the SWIFT system.

So far, the UK’s existing measures include sanctions on Promsvyazbank which is unlikely to affect the situation given that this is a domestic rouble-based bank which is predominantly based in the domestic defence sector – and thus has little international exposure.

Meanwhile, over in the US, while Washington has imposed sanctions on VEB bank, there is a one-month grace period in order to ensure that any contracts which may involve American firms being paid can be settled.

Moreover, officials within the Kremlin have stated that Russia is well prepared for sanctions given their $650bn in foreign exchange reserves, their budget surplus, and their low GDP to debt ratio. Moreover, in recent years domestic banks have accounted for a greater proportion of Russia’s debt with overseas investors now owning only around 20% of it – down from around 35% in 2019. Although it is worth noting that in the US there has been a ban on buying dollar denominated Russian debt since 2014 (following the Russian Annexation of Crimea) and rouble denominated debt since last year. Hence, while the yield on 10-year rouble denominated bonds have increased from 7% in September to around 10.9% today, it is evident that the current sanctions from the global community have not been sufficient in deterring Russia’s continued invasion of Ukraine.

The FT has more:

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Market Reactions
Following the invasion, in the 24-hour period between noon on 23rd and 24th February safe-haven assets such as gold saw considerable appreciation with the commodity hitting 15-month high of $1,973 USD/t.oz. The risk off attitude also feed into USD strength with the DXY up around one percent in this time period.

Again, in the 24-hour period between noon on 23rd and 24th February, commodities were subject to considerable volatility. For example, day ahead natural gas prices in the UK were up some 33% while Gazprom fell 39%. Similarly, oil prices rose above $100dpb for the first time since 2014 with Brent trading at 8.3% higher at $104.85dpb as the prospect of a decrease in supply through further sanctions on Russia hit market sentiments. Agricultural indexes also rose significantly given how prevalent Ukraine’s agricultural market is on the world’s supply – particularly in relation to wheat which is one of its key exports. Additionally, given that Russia produces some 40% of the world’s palladium, the metal rose 8% on the 24th as the market considered the implications of curtailments in supply. Likewise, nickel hit its highest level in a decade with aluminium breaking its all-time level of $3,420. Countries bordering Ukraine saw their stock index hit particularly hard with for example Warsaw’s stock market falling more than 10%.

Meanwhile in Russia, the MOEX closed 33.3% lower – representing a four-year low – with Russia’s financial institutions bearing the brunt given their exposure to western sanctions. For instance, Sberbank (Russia’s largest lender) was down 48% as markets waited to gain more information on the extent of these further sanctions.

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Have a great day.

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