Russia's assault on global markets

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Mar 01, 2022 View in browser   By Kate Davidson and Aubree Eliza Weaver Presented by ExxonMobil Editor's Note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro. Quick Fix The potential ripple effects of Russia's invasion of Ukraine and the ensuing wave of crushing sanctions jolted markets, raising new questions about a global economic slowdown. We chatted Monday with Cecilia Rouse, chair of the White House Council of Economic Advisers, who warned that rising gasoline prices pose the biggest risk for U.S. economic momentum as the West piles on sanctions to punish the Kremlin. "The economic risks will hinge on the length of this war. And the more quickly it is resolved, then the smaller the impacts," Rouse said in an interview with POLITICO's Women Rule. "The longer it goes on, the deeper the uncertainty. So I would say that this has definitely clouded the outlook." The invasion and the sanctions will likely drive up energy costs, raising prices at the pump for U.S. consumers at a time when inflation is already hovering near four-decade highs. Some economists warn that could crimp consumer demand and weigh down economic growth this year, complicating the path for policymakers already grappling with broadening price pressures. Market gyrations continued Monday as investors tried to digest the latest developments, sending stocks swinging up and down. The S&P 500 finished 0.2 percent lower, after being down as much as 1.6 percent, while the Dow Jones Industrial Average fell 0.5 percent and the Nasdaq rose 0.4 percent, recouping earlier losses. What could it mean for the Fed? We'll hear more on that this week from Federal Reserve Chair Jay Powell, who is set to testify on Capitol Hill tomorrow and Thursday. Jason Furman, who was CEA chair during the Obama administration, told us on Monday that he expects the U.S. central bank to mostly look beyond the news related to Ukraine, "not to raise rates more because it triggers some temporary extra inflation but not to hold off on rate increases because there's not a lot of… impact on the U.S. economy, especially on the horizon of a year, from an event like this." He said there's a small risk that higher inflation exacerbated by an oil price spike could lead to a more persistent increase in prices, if it changes expectations about future inflation. "That's more of a risk now than the last time we had high oil prices from 2011 to 2014. That being said, I don't think that's a huge risk," he said, adding that oil prices are still well below where they were the last two times prices peaked over the last 15 years. Sanctions are working — Rouse also said the administration's economic statecraft is having its intended effect. "The Russian Central Bank has increased, it's doubled the interest rate it is charging, which is its attempts to support the ruble," she said. "And much of this is not only the fact that we have frozen their reserves, but other countries as well. And so, you know, the noose is tightening, in terms of — Putin just doesn't have access to the resources he was counting on." The Russian ruble nosedived on Monday, slumping as much as 30 percent, as the country's central bank sought to defend the currency, lifting its key interest rate to 20 percent and imposing some capital controls. Will China help fund Moscow's war chest? A key question is whether Beijing will step in to help. Our colleague Stuart Lau, Politico's EU-China correspondent, writes: "While Beijing still wants to count on Moscow as a long-term strategic partner to fend off America's global influence, it will no doubt be wary of the international reaction if it opts for measures that could be interpreted as an endorsement of Putin's aggression, according to experts." So far, Chinese policymakers have focused less on their ability to help Russia than providing general commentary on the impact of sanctions on the Russian and European economies, Stuart writes. And the People's Bank of China, the Chinese central bank, hasn't given any clues yet about the status of Russian foreign exchange reserves or the currency swap line. IT'S TUESDAY — March is here. Only three weeks to the official start to spring. The bar for good news is low, folks! Have tips or story ideas? You know what to do: kdavidson@politico.com, aweaver@politico.com, or on Twitter @katedavidson or @aubreeeweaver.   A message from ExxonMobil: ExxonMobil is committed to playing a leading role in the energy transition. We're advancing climate solutions, including carbon capture and storage, hydrogen and advanced biofuels. And, by 2050, we aim to achieve net-zero emissions (Scope 1 and 2) from our operated assets. We're working with partners to achieve similar results from non-operated assets and advocating for supportive policies to accelerate the deployment of lower-emission technologies needed to support a net-zero future. Learn more at ExxonMobil.com/Solutions   Driving the Day Construction spending data released at 10 a.m. … House Oversight Committee hearing on state and local pandemic aid funding at 10 a.m. … House Economic Disparity Committee hearing on stable housing access at 10 a.m. … Atlanta Fed President Raphael Bostic speaks at 2 p.m. BIDEN TO CRITICIZE OCEAN CARRIERS IN SOTU REMARKS — Our Steven Overly: "The Biden administration is moving to crack down on ocean carriers that it says unfairly inflate shipping prices, a pandemic-era practice that officials argue has contributed to higher prices for American consumers. "President Joe Biden will announce in Tuesday's State of the Union address that the Justice Department and Federal Maritime Commission will begin sharing personnel as part of a joint initiative to more heavily scrutinize the ocean freight industry, senior administration officials said Monday. —DOJ's antitrust division will provide attorneys and economists to assist the maritime commission with enforcing the U.S. Shipping Act, a 1984 law that lightly regulates ocean carriers. Meanwhile, the commission will lend its "support and maritime industry expertise" to DOJ's antitrust cases, Steven reports. BROWN KEEPS UP FED NOMINEE FIGHT — Our Burgess Everett reports Senate Banking Chair Sherrod Brown (D-Ohio) is set to hold another vote tomorrow on Biden's five Fed nominees, after Republicans blocked the slate last month, arguing they hadn't gotten all of the information they wanted from Sarah Bloom Raskin, Biden's pick to be Fed vice chair for supervision. From Burgess: Brown said he simply cannot acquiesce and remove Sarah Bloom Raskin … from the docket "because then the message to every ranking member is, 'Hey, if you want to kill a nomination just don't show up for the vote.'" "They are under a lot of pressure. I think that they look even sillier with this awful situation in Ukraine that they're playing politics because they don't want to vote on somebody because she didn't give them the answers they wanted," Brown said in an interview. Sen. Pat Toomey (R-Pa.), the panel's top Republican, told Burgess he still isn't satisfied with Raskin's responses to committee questions, and his expectation is that GOP lawmakers will skip the vote again.   SUBSCRIBE TO NATIONAL SECURITY DAILY : Keep up with the latest critical developments from Ukraine and across Europe in our daily newsletter, National Security Daily. The Russian invasion of Ukraine could disrupt the established world order and result in a refugee crisis, increased cyberattacks, rising energy costs and additional disruption to global supply chains. Go inside the top national security and foreign-policymaking shops for insight on the global threats faced by the U.S. and its allies and what actions world leaders are taking to address them. Subscribe today.     Crypto BINANCE — Our Sam Sutton writes: Crypto's libertarian ethos is colliding head-on with governments seeking to weaponize the global financial system. Vice Prime Minister of Ukraine Mykhailo Fedorov's public appeal for crypto exchanges to block users with Russian addresses was rebuffed by the $1.8 trillion market's largest trading platform, Binance. Unilaterally freezing accounts "would fly in the face of the reason why crypto exists," the company told CNBC. With Russia's currency crashing amid sanctions, trading volumes between the ruble and Bitcoin are surging. The bulk of that trading activity is happening on Binance's platform according to CoinDesk and the research firm Kaiko. Separately, Binance announced early Monday that it would donate $10 million to UNICEF, UNHCR, the UN Refugee Agency, iSans, People in Need and other groups to support those who've been displaced by the escalating conflict. ADMIN PRODS CRYPTO EXCHANGES TO THWART SANCTIONS DODGERS — Bloomberg's Ben Bartenstein and Allyson Versprille: "The Biden administration is asking crypto exchanges to help ensure that Russian individuals and organizations aren't using virtual currencies to avoid sanctions leveled on them by Washington, according to people with direct knowledge of the matter.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.     Ukraine STATES ADDING TO FINANCIAL SQUEEZE ON RUSSIA — AP's David A. Lieb: "Seeking to tighten the financial squeeze on Russia over its war against Ukraine, governors and lawmakers in numerous U.S. states were taking actions Monday to pull state investments from Russian companies while encouraging private entities to do the same. The effect of sanctions by U.S. states often pales in comparison to national ones, but state officials said they wanted to show solidarity with Ukraine and do what they could to build upon the penalties imposed on Russia by the U.S. government and other Western nations." U.S. POSITIONED TO WITHSTAND ECONOMIC SHOCK FROM UKRAINE CRISIS — WSJ's Jon Hilsenrath: "As Russian President Vladimir Putin launched a war against Ukraine, half a world away the U.S. economy appeared to be rebounding from a winter surge of Covid-19 infections. A range of U.S. data suggests U.S. economic activity picked up in recent weeks. Many Wall Street analysts expect the Labor Department on Friday to report large job gains in February and a further decline in unemployment. These developments suggest that the U.S. is in a position to withstand the economic shock that might emanate from battlegrounds in Ukraine. Those effects could push U.S. inflation higher from already elevated levels, but the economic expansion appears to be on solid ground." Fed File RUSSIA-UKRAINE WAR RISKS PUTTING FED IN BIGGER BIND — WSJ's Nick Timiraos: "The war in Ukraine isn't likely to prevent the Federal Reserve from raising interest rates next month, but any worsening of inflation pressures could force the central bank to tighten policy even more aggressively than already hinted by senior officials. In public comments and interviews last week, Fed officials endorsed plans to lift rates at their March 15-16 meeting. They said it was too soon to tell how the war will affect the economic outlook but they are monitoring developments carefully." —Meanwhile, our Eleanor Mueller writes about growing worries over a 1970s-style wage-price spiral . Moody's Analytics chief economist Mark Zandi says: "We're on a razor's edge here with regard to how this is going to play out. It's prudent to be on high alert because that very much could happen."   A message from ExxonMobil:   Jobs Report Tom Davis has joined the Financial Technology Association as vice president of membership and development. Davis worked previously as the global membership director for Young Presidents Organization, and was also director of business development for the Conference Board's CEO membership. Fly Around FIRST LOOK: WELLS FARGO/MORNING CONSULT SMALL BUSINESS POLL — A new poll commissioned by Wells Fargo and conducted by Morning Consult of small business owners found 62 percent are very confident or reasonably confident about the financial health of their business over the next 12 months. Among other key findings: more than half said access to capital is a major concern or reasonable concern; 60 percent said they had taken out new financing over the past 12 months, with the most common reason being to take advantage of increased financing available, such as Paycheck Protection Program loans; 64 percent said owning more of their physical assets is a priority. UKRAINE WAR TESTS THE POWER OF TECH GIANTS — NYT's Adam Satariano and Sheera Frenkel: "Russia's invasion of Ukraine has become a defining geopolitical moment for some of the world's biggest tech companies, as their platforms have turned into major battlefields for a parallel information war and their data and services have become vital links in the conflict." CITIGROUP DISCLOSES NEAR $10B EXPOSURE TO RUSSIA AS SANCTIONS TIGHTEN — FT's Joshua Franklin: "Citigroup said it has almost $10bn worth of exposure to Russiathrough loans, government debt and other assets, partly held through its retail bank in the country which it has said it wants to sell. The disclosure, made in Citi's annual report on Monday, underscores how the New York-based bank's business is more directly tied to events in Russia than any of its Wall Street rivals, as Western powers ratchet up financial sanctions on the country following President Vladimir Putin's invasion of Ukraine." PRIVATE EQUITY TRENDS — The American Investment Council is releasing a new report before the president's State of the Union address today on the state of private equity, which it says invested in 5,205 small businesses in 2021, representing 74 percent of total investments. According to the report, 97 percent of deals were under $500 million.   A message from ExxonMobil: ExxonMobil is committed to playing a leading role in the energy transition and advancing climate solutions while continuing to power economies around the world. We're investing $15 billion in lower-emission technologies, including carbon capture and storage, hydrogen and advanced biofuels, through 2027. By 2050, we aim to achieve net-zero emissions (Scope 1 and 2) from our operated assets, backed by a comprehensive approach with detailed emission-reduction roadmaps. And where we are not the operator, we're also working with partners to achieve similar results and help them reach their emission reduction goals. We're advocating for supportive policies, such as a price on carbon, which can help reduce costs and drive new markets to accelerate deployment of key lower-emission technologies needed to support a net-zero future. Learn more about our plans and how our strategy is resilient under the International Energy Agency's Net Zero Emissions by 2050 Scenario at ExxonMobil.com/Solutions     Follow us on Twitter Mark McQuillian @mcqdc Kate Davidson @KateDAvidson Aubree Eliza Weaver @aubreeeweaver Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary   Follow us

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