One Day of Western-Russian Mutual Economic Destruction

  • Russia banned ban all beef, pork, fruit, vegetables and dairy products from US, EU, Canada, Australia and Norway for one year. Russia also prohibited Ukrainian airlines from making transit flights over Russia's airspace to Azerbaijan, Georgia, Armenia and Turkey. Medvedev said Moscow is considering imposing similar restrictions on EU and U.S. companies, banning them from transit flights over Siberia. Narrowing the air corridors open to Western carriers was another possibility. (NYT, WP, WSJ, 08.07.14).
  • Citibank is estimating that Russia's ban on EU and US food imports could add one or two points to the inflation rate for 2014, currently running around 6.5%. (NYT, 08.07.14).
  • Russian bond yields surged to multi-year highs on Thursday as food import restrictions fanned inflation fears. Ten-year yields hit 4-1/2-month highs, having risen 150 basis points this month, while the five-year yields were at two-year highs. The ruble hit new 4-1/2 month lows and blue-chip stocks sank still further. (Reuters, 08.07.14).
  • EU restrictions on exports deep see drilling technologies may have contributed to increase in price of oil futures. “On a one-year rear view, we note that the price of one-month Brent oil is little changed, whilst the longest dated futures contract price has increased over $11 a barrel or 13 per cent,” said analysts at JPMorgan .  “We may well be confronted [with] lower Russian production three to five years down the line,” Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, said. (FT, 08.06.14).
  • Vladislav Inozemtsev, an economist and the director of the Centre for Post-Industrial Studies, suggested that within two or three years, Russia could see a GDP drop of 5 % and significantly higher taxes. (FA, 08.06.14).
  • US Treasury bonds perked up Thursday for a fifth straight session as geopolitical tensions in Ukraine boosted demand for haven assets. In recent trading, the benchmark 10-year Treasury note was 3/32 higher, yielding 2.464%.The yield trades near 2.4%, the lowest intraday level of the year which was set in late May. (WSJ, 08.07.14).
  • Two major state-controlled Russian banks – Gazprombank and Rosselkhozbank (Russia's 3rd and 5th largest lenders) – have turned to the government for nearly $4 billion to shore them up after they were excluded from Western capital markets. (MT, 08.07.14).
  • U.S. exports to Russia plummeted 34% on the month to the lowest level since January last year. Imports from Russian firms, meanwhile, fell nearly 10%, the third consecutive month of declines in U.S. purchases. That asymmetric fall between buying and selling pushed the trade gap with Russia up 25% to $1.13 billion. (WSJ, 08.06.14).
  • Coca-Cola HBC warned volumes would fall for the rest of the year, citing a "sudden deterioration" in Russia, its biggest market. (Reuters, 08.07.14).
  • A cocktail of renewed concerns over the conflict in Ukraine and a return to recession in Italy rattled investors' nerves Wednesday, hitting European stocks. The Stoxx Europe 600 index fell 2.91 points, closing 0.9% lower at 329.19, having fallen as much as 1.5% earlier in the day. (WSJ, 08.06.14).
  • Shares in Marine Harvest ASA and SalMar ASA promptly sank after Russia announced sanctions. The two Oslo-listed firms are among the world’s largest producers of salmon, and they count on Russia for 5% and 8% of sales respectively. (AP, 08.07.14).
  • Rheinmetall AG, the German industrial group, lowered its sales and earnings forecasts after the German government revoked permission for Rheinmetall to complete the €100 million center intended to train some 30,000 Russian soldiers a year. In the full year, Rheinmetall now sees sales between €4.6 billion euros and €4.7 billion, compared with a previous forecast of €4.8 billion and €4.9 billion. (WSJ, 08.06.14).
  • In Russia, Adidas will only open 80 stores this year. That is below the 150 formerly planned. Adidas shareholders saw a 16 per cent slide in net profits in the second quarter of the year (WSJ, FT, 08.07.14).
  • German retailer Metro last week reported a 3 per cent dip in sales for the second quarter of the year. It has been hit particularly hard by developments in Russia, where it was forced to delay a planned partial listing of its Russian cash-and-carry arm this year amid uncertainty triggered by the crisis in Ukraine. (FT, 08.07.14).
  • Between April and June, there were ‎30,200 fewer Russians visiting the Czech Republic than a year earlier, which represents a 14% annual decline. Russians are the second-largest group of tourists to the Czech Republic. (WSJ, 08.07.14).
  • The Ukrainian government is forecasting a GDP decline of 6% to 7% this year. Economics Minister Pavlo Sheremeta said at least three percentage points of that is a result of the war in the east. Ukraine's unemployment rate has already jumped from 7.7% last year to 9.3% in the first quarter of 201. In the first five months of 2014, Ukrainian exports to Russia have dropped 24% compared with the same period last year, and officials predict they will fall more. (WSJ, 08.07.14).
  • Canada's latest targets for sanctions include four Russian lenders—Bank of Moscow, Russian Agricultural Bank, Russian National Commercial Bank and VTB Bank OAO—and Dobrolet Airlines, a low-cost airline flying from Moscow to Crimea.  (WSJ, 08.06.14).
  • Judah: Russia’s pivot to Asia does not mean American sanctions are failing. There is little confidence China’s shaky banks can ever replicate the Western financial security they had grown used to. The larger Russian banks will need to refinance around $50 billion in debt by the end of next year; Russian firms have around $100 billion to pay down. (Politico, 07.31.14).
  • Russia imports about 25% of its food, worth some $43 billion annually. Of that, about 75%, or $30 billion, comes mainly from Europe and the United States. The other 25% is mainly from former Soviet republics. The EU last year exported €8.8 billion ($11.79 billion) in food and live animals to Russia, a tiny fraction of the bloc's overall exports. Alcoholic beverages last year accounted for a further €1.5 billion in exports to Russia. (WSJ, 08.06.14, NYT, 08.07.14).
  • Even in the midst of tensions over Ukraine, there are signs that Russia's influence over European energy markets is weakening rather than growing stronger. Prices for future delivery of gas have dropped 30% over the past year on the British market, Europe's most liquid. (NYT, 08.07.14).
  • Russia is Finland's third largest export market, accounting for about 10% of total Finnish sales abroad. Russian tourists also spend $2.7 billion annually in Finland. Finland could face an economic crisis because of EU sanctions against Russia, its prime minister said. (Reuters, 08.06.14).
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