Russia & Ukraine
The market has been a bit of a yo-yo in the last 24 hours, with risk-on plays coming after the news that Russia was withdrawing some of their troops from the Ukrainian border, followed by risk-off moves after the White House called those claims ‘false’ – in fact they believe that troop numbers have increased in recent days. This risk-off move was further exacerbated overnight after reports from Russian news sources that Ukrainian forces had started shelling Eastern Ukraine with mortars. This is exactly the play that the US government warned about a couple of weeks ago, with Russia using something like this as a pretext for launching an invasion and as such the market is now waiting for more reliable information on whether this has happened or not. Meanwhile, Estonia’s foreign intelligence service has said they expect Russia to launch a “limited” military attack that would involve missile bombardment and occupation of “key terrain”. They did say that it’s likely they’d avoid cities with large populations because of the number of troops it would take to control these areas.
UK Golden Visa
The UK Government is planning to end the ‘golden visa’ scheme which offers residency for foreign investors who invest over £2m into qualifying investments such as UK bonds. Though the scheme has been running for some 14 years it has been subject to considerable criticism in recent months given the concerns raised about the extent of Russian influence in the UK and money laundering. According to the Home office, some 14,500 of these visas have been granted to Russian citizens since 2008 and while due diligence checks have increased vis-à-vis the visas, such concerns remain.
Recently, Transparency International – an anti-corruption organisation – estimates that there is around £5bn worth of property in the UK which has “suspicious wealth” with around 20% of that coming from Russia.
Moreover, according to Professor of Global History at Oxford University, Peter Frankopan while between 2007 and 2014 around 10% of all money spent on property in London was Russian, this figure is as high as 20% on homes valued at over £10m. He goes further to cite that house prices in London would be 19% lower in the absence of foreign investment between 1999 and 2014 given the trickle-down effect that the purchase of high value property causes on the winder market. Hence, as geo-political tensions continue to rise between the West and Russia, there are an increasing number of calls to clamp down on Russian influence and the extent of ‘dirty money’ in the British economy.
Sticking with property, for the first time in 20 years the average house price increase over the space of a year exceeded the average salary. For example, in 2021 while the average salary hit £25,971 the average house price increased £27,000. Just this week we learn that average earnings rose 4.2% in 2021 while house prices surged 10.8% (although this was a high as 13% in Wales). Adding to this it is expected that by May 2024, real wages will have grown by just 2.4% since 2008 (compared with a 38% real wage increase between 1992 and 2008). Hence, as real wages stagger while house prices surge the implications on a first-time buyer’s ability to get on the ladder are significant.
In Europe: The European Court of Justice ruled yesterday that Brussels can withhold funding from Hungary and Poland – to the tune of about €150bn over the next five years – because they’re violating laws on judicial independence, migrant quotas and LGBT rights. The ruling will be a wake up call for both countries, as EU funding is worth around 5% of Hungary’s GDP and 3% of Poland’s, which when looked at in any context is an awful lot to lose. Unsurprisingly, both countries have condemned the ruling and called it an attack on their rights to govern themselves, whereas the ECJ’s line is that “compliance with the common values on which the EU is founded is a condition for the enjoyment of all the rights deriving from the application of the treaties to a member state”. It’s now down to Ursula von der Leyen to work out the timelines of implementation and for Hungary and Poland to work out how to respond.
Federal Reserve Meeting
The geo-political news somewhat overshadowed what would have otherwise been an ‘interesting’ release of the minutes from the last Federal Reserve meeting. The minutes said what we all knew; interest rates need to rise soon, and the Fed are falling into line with the market expectation that we’re going to see base rates around 2% by the end of this year. If this wasn’t enough to affirm the position, Treasury secretary (and former Fed chair) Janet Yellen weighed in and said that inflation is unacceptable, and she expects the Fed to use the tools at their disposal to get this sorted. The minutes could have been more hawkish though and had it not been for Russia there likely would have been a sigh of relief that there wasn’t talk of intra-meeting rate hikes or sequential 50bps hikes.
New President of Global Affairs at Meta
Yesterday, news emerged that Sir Nick Clegg has been promoted to president of global affairs at Meta having previously held the vice-president’s role. Clegg’s position here saw him help establish the Facebook Oversight Board (chaired by Denmark’s former PM, Helle Thorning-Schmidt) which manages content moderation – and navigate criticism from States and organisations which have come down hard on Facebook in relation topics such as misinformation and self-harm.
While Clegg’s pay package has not been disclosed it is likely to be in the seven figures – a considerable increase from his £134,565 salary while serving as the deputy prime-minister.
Looking ahead, key market data out tomorrow includes UK retail sales where the market is expecting a 1% increase, fowling December’s print of -3.7%. Later tomorrow we have consumer confidence data in the Eurozone which is expected to come in at -8pts, a slight increase from last months figure of -8.5pts.
Have a great day.