Conflict in Ukraine
The Ministry of Defence are stating that Russian forces are having to revert to older, less precise weapons given that their failure to control airspace and take key areas has caused them to use more armaments than they had anticipated. This intelligence gives further evidence to suggest that Putin has vastly underestimated his military campaign as it enters its fourth week.
This is concerning analysts at the Centre for Strategic and International Studies whose data suggests that the window of opportunity to deescalate violence and find a diplomatic solution to interstate wars decreases significantly after the first thirty days. Using information from the Uppsala Conflict Data Program, they found that when wars lasted over a month but less than a year, only 24% ended in a ceasefire. Equally alarming is that on average when interstate wars last longer than a year, they extend to over a decade. Hence, as the conflict enters its fourth week and the window of opportunity for a diplomat solution decreases, there is growing pressure on the global community to look for ways to deescalate the conflict and apply greater pressure on Putin.
Earlier in the week Zelenskiy stated that Moscow’s take in the negotiations were becoming ‘more realistic’ while stating that it was not possible for Ukraine to join Nato. Putin’s sentiments have however given little optimism for any peace being brokered as Russian bombardments of civilians – including a theatre in Mariupol – continues.
BoE Interest Rate Decision
At 12noon all eyes will be on Threadneedle Street where the BoE are making their latest interest rate decision. While the general market consensus is that the BoE are expected to continue on course with a 25bps hike, markets have priced in a 30% chance of a 0.5% rise. While the probability of a 50bp hike was considerably higher prior to the Russian invasion of Ukraine (61% on 16th February), the war’s determinantal impact on the prospect of growth has subdued the appetite of raising rates to 0.75%. Nevertheless, the BoE find themselves in a balancing act as inflation stands at a 30 year high with CPI at 5.5%. Hence, with forecasters predicting that inflation will continue to climb to around 7.25% in April (when the energy price cap is lifted by 54% and NI contributions are raised), the market is predicting four further hikes this year with an additional one in Q1 2023 bringing rates to 1.75%.
The BoE’s monetary policy statement follows yesterday’s interest rate decision from the Fed which saw rates increase by 25bp to 0.5%. This was the first time the Fed had raised rates since December 2018, and with inflation at 7.9%, the market is expecting five further hikes this year.
Online Safety Bill
The online universe might be finding itself subject to some regulations with teeth, as new UK legislation makes its way through parliament. The Online Safety Bill is to be presented in the Commons today and is designed to hold senior executives at tech companies criminally liable for shortfalls in protecting users and upholding their terms of service. Politicians involved in the drafting of the bill have called it a “huge moment” for internet users around the world and it well mean “the era of self-regulation in Big Tech has finally come to an end.” As well as prosecution, firms could face fines of up to 10% of their global revenues – not that they’ll ever get the full 10% fine, but even at a fraction of that the numbers could easily run into the hundreds of millions if companies don’t get their acts together. Tech firms have long claimed to be doing their best to manage harmful content on their sites, so it will be interesting to see if this legislation prompts them to make ‘their best’ a little better.
With Russia now the pariah of the global energy markets, the world is making a bee line to find the next least bad option to do business with. These options range from Venezuela to Iran and Saudi Arabia. On the Iranian front things took a step forward in getting a deal done to revive the 2015 nuclear accord and raise sanctions – with the wheels greased by the UK government finally settling a $400m 40-year-old debt, which in turn secured the release of Nazanin Zaghari-Ratcliffe and Anoosh Ashoori. Last week the talks looked doomed, but some severe behind the scenes negotiations have brought it back on track and it is believed that, subject to a couple of hurdles being overcome, something could be signed within days. Proving the interwoven nature of global energy, the turnaround in fortunes from last week, when it was thought this might be dead, was because the US has apparently guaranteed Russia that sanctions on the country won’t impact Moscow’s business with Tehran! Iran’s oil reserves are vast and they could theoretically get another 2-2.5 million barrels per day onto markets relatively swiftly, which would serve to alleviate price pressures, though nowhere near as much as they would if Boris could have convinced Mohammed bin Salman to open Saudi’s oil spigots (that could add another 8m bpd to global supplies) which he didn’t.
On the other side of the Pond, the US is courting Venezuela and oil giant Chevron have already said that they’re standing by to get Venezuelan oil moving through their refineries as early as next month if Washington tweaked their sanctions on the country, which would put oil majors on the right side of the law. There are obviously strings attached to those tweaks, with the Maduro government required to set firm dates to resume negotiations with opposition parties in the country and also to release more US citizens that are in Venezuelan prisons. Venezuela has the largest oil reserves in the world, but sanctions, corruption and under investment have meant they’re producing just 750,000 barrels per day at the moment.
Have a great day.