“The war in Ukraine could change everything.” This is according to a TED talk by Professor Yuval Harari, an Israeli public intellectual and historian. He describes how, besides the regional and deep humanitarian crisis, so much is at stake for everyone across the globe if the conflict is not resolved soon.
By “resolved” he means an acceptable outcome that recognises Ukraine’s history as a nation and its sovereign rights. If this is not achieved, the unprecedented period of relative global peace, which has prevailed since the end of World War II, would usher in a new era where there would be a “race to the bottom” in terms of the re-armament of nations across the globe.
Ukraine and Russia have not yet managed to halt the war and bridge the vast differences between them at the high-level talks between their respective foreign ministers, although markets reacted positively on Friday afternoon to news that Putin saw positive shifts in his country’s talks with Ukraine.
Without resolution, the globalisation of the world’s economy, most significantly since the fall of the Soviet Union in 1991, would be reversed, with governments’ budgets designated for healthcare and renewable energy – outward looking spending – being diverted to dramatically increased allocations to their respective military budgets, further compounded by the immediate need to secure alternative fossil fuel energy supplies that are not dependent on Russia – inward looking spending.
From a positive perspective, Harari believes the war has galvanised America and Western Europe’s interests, which should continue to promote global stability, during and post crisis. An imminent end to the Russia-Ukraine war should result in a partial normalisation of commodity prices, which in turn would provide some relief to persistently high inflation. (US inflation reached a 40-year high in February, with consumer prices jumping 7.9% from a year ago – the fastest annual rate since the Reagan administration).
We expect this to mitigate the risk of a more hawkish interest rate policy by major central banks, thereby underpinning a recovery in those equity market sectors that have been hit hardest year-to-date.
“Putin, in poker terms, has gone all in – so he either wins or loses.”
– Kaja Kallis, Estonian prime minister, in an interview with Bloomberg Television
Global News
- America’s inflation has climbed at the highest level in four decades as the Consumer Price Index rose by 7.9% for the twelve months through February. Rising food and rent costs contributed to the big increase, the Bureau of Labour Statistics said, as did a nascent surge in gas prices that will become more pronounced in the March inflation report. These higher prices have been attributed to the war in eastern Europe.
- Worries about a nuclear war have sparked a Newsweek piece noting that Russia is on standby, with commentators saying Putin may actually go ahead. “Yes, Putin might do the unthinkable,” James Clapper, the former director of national intelligence, said to Business Insider.
- Russia has said it will continue attacks until its goals are met, Ukrainian foreign minister, Dmytro Kuleba, said after a meeting between the two countries. “The broad narrative [Russia’s foreign minister] conveyed to me is that they will continue their aggression until Ukraine meets their demands, and the least of these demands is surrender,” he said.
- The ongoing war between the two nations has broadened the probability distribution for equity market outcomes, according to UBS. Increased uncertainty stems from several factors, including Russian president Vladimir Putin’s intentions, the extent of future sanctions, military outcomes, the defence policies of non-NATO states, China’s perceived posture, commodity prices, global growth, inflation, and central bank policy.
- Brent crude oil traded above $130 a barrel earlier this week as the US administration announced a ban on the import of Russian oil and gas as punishment for its invasion of Ukraine two weeks ago. Economic planners are now confronting the unthinkable: what if oil prices spike to $200 or even $300 per barrel? Read the analysis here. There are two points before doom scrolling to economic depression: some corporates have already stopped buying Russian energy, and there is talk that workers could return to a work-from-home scenario as seen during the height of Covid lockdowns.
- The intensity of the international response in sanctioning Russia’s economy appears to have caught the Kremlin by surprise, with the ruble sinking to record lows, dozens of foreign businesses pulling out of the country, and markets pricing in a growing risk of a sovereign default.
- However, oil has sunk 14% in recent days as the risk-on rally becomes the latest wild ride for markets, which have been roiled by fears of a global inflation shock. This from a commodity price rally fuelled by Russia’s isolation, while supply disruptions threaten to usher in a period of slower global growth.
- The US is using export controls as a tool to starve Russia of technology – stripping the nation of everything from iPhones and Airbnb listings to defence electronics – in an unprecedented experiment that risks pushing Putin further into China’s orbit.
- Starbucks and Coca-Cola have joined the steady stream of companies suspending operations or pulling out of Russia. Fitch Ratings said a bond default is “imminent” because of the country’s financial isolation.
- As companies from the west pull out, Russia’s government is moving closer to seizing and even nationalising foreign-owned companies that are leaving the market over the invasion of Ukraine, while planning measures to coax others into staying. The Economy Ministry has outlined new policies to take temporary control of departing companies where foreign ownership exceeds 25%.
- Naspers’ international e-commerce arm, Prosus, has written down its $769 million stake in Russian social networking platform VK Group – previously known as Mail.ru. It also vacated its board seats, joining a host of companies and investors tallying up the losses from Moscow’s invasion of Ukraine.
- US futures were positive before the market opening today, recovering 3% from Tuesday’s lows to be 0.4% down for the week and slightly up since the invasion of Ukraine began on 24 February.
Local News
- South African President Cyril Ramaphosa said in a tweet that the country has been “approached to play a mediation role” in the conflict between Russia and Ukraine. This follows a telephonic conversation with Putin. Ramaphosa conveyed his belief that the conflict should be resolved through mediation and negotiation.
- South Africa has been an unexpected beneficiary of the war between Russia and Ukraine. The local currency has been resilient this month despite its tag as a proxy currency for emerging market sentiment, with money from non-residents pouring into South Africa’s bonds and stocks in recent days. The rand is one of just five among 24 developing nations that has advanced against the US dollar in March, with Colombia’s peso posting the biggest gains among the group.
- Although South Africa has achieved its biggest annual rate of growth in 14 years, this comes off a low base and economists are warning that there are constraints on the outlook. To locally driven structural weaknesses, highlighted again as Eskom resumed rolling power cuts on Monday, they have added Russia’s invasion of Ukraine, which pushed the oil price beyond $130 a barrel. That could cause an inflation spike locally and force the Reserve Bank to accelerate interest rate hikes, a concern that’s already reflected in bond yields surging to their highest level since the Covid-19 outbreak.
- While traders are cashing in on soaring wheat prices globally, benefits for South African farmers are being offset by increases in the cost of inputs such as diesel and fertiliser, which are also priced in dollars. Despite conditions being favourable for grain farming, the country still imports about half of its local wheat consumption, which leaves it at the mercy of Russia and Ukraine, the biggest and third-biggest global exporters, respectively.
- On Thursday, the Presidency announced that Judge Raymond Zondo will be South Africa’s next Chief Justice, with Judge Mandisa Maya his deputy. It is a decision that reveals the kind of independent, strategic thinking that South Africa has seen far too little of from Ramaphosa in his leadership to date.
- Meanwhile, shares in Nedbank rose 3.3% in early morning trade on Wednesday after the bank said it would meet a 2023 profit target a year ahead of schedule, reporting a 114% rise in 2021 earnings. Nedbank is enjoying a rebound after hefty provisions for bad debts sparked by Covid-19 left a huge dent in profits, although it said these were still 7% below 2019 levels.
- Shoprite, the biggest grocery store in Africa, reported a 10% jump in its half-year sales to over R91 billion. This as more consumers spend across its various stores, including Checkers, Usave, House & Home, and Computicket. The higher sales reported by Shoprite helped drive a 25.5% jump in profit, which Shoprite CEO, Pieter Engelbrecht, described as “extraordinary growth” in sales during the Moneyweb market update.
- South Africa, it seems, is shedding skills and wealth. On one hand, the number of high-income earners has dropped over the past seven years, bearing out reports of a relentless exodus of skills and talent. This has worrying implications for future consumer spending and tax collection. On the other hand, the country’s tax base is growing and fared better during the pandemic than many had feared. The overall number of high-end taxpayers has stagnated, raising questions about SA’s long-run fiscal sustainability.
- The JSE was slightly off for the week, falling by 0.9% at the time of writing, but also remains slightly ahead of the levels of 24 February and, unlike global counterparts, ever so slightly ahead of where it started the year.
Sources: Dynasty, Moneyweb, Reuters, BusinessLive, New York Times, Bloomberg, Daily Maverick, Newsweek, New York Times, etc.