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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

Russia threatens to pay external debt in roubles; Ukraine’s GDP ‘could shrink 35%’; UK petrol to surge – as it happened

Russia United Kingdom United States China Europe Ukraine Anton Siluanov Amrita Sen International Monetary Fund Oleg Deripaska
A board showing currency exchange rates of the Euro and the U.S. dollar against the Russian rouble in Moscow last week
A board showing currency exchange rates of the Euro and the U.S. dollar against the Russian rouble in Moscow last week Photograph: Maxim Shemetov/Reuters

Closing post

Time to wrap up - here are today’s main stories on the Russia-Ukraine crisis.

Russia could be set to miss a debt repayment this week, putting the country on the brink of default following the sanctions imposed over the invasion of Ukraine.

Moscow has said tonight that it has sent an order to a correspondent bank to pay interest of $117.2m on external loans, which is due on Wednesday.

But Russia’s FX reserves largely frozen, it may not be able to make a coupon repayment in dollars, as required.

This morning, Russia’s finance ministry announced that it approved a temporary procedure for repaying foreign currency debts, but that roubles would be used if necessary.

Finance minister Anton Siluanov said in a statement:

“Claims that Russia cannot fulfil its sovereign debt obligations are untrue,”

“We have the necessary funds to service our obligations.”

Siluanov has also suggested that Russia will use its yuan reserves to settle its foreign exchange needs -- but that again might count as a default. If the payment is missed, Russia will have a 30-day grace period before formally defaulting.

In other Russia-related developments, the IMF has warned that the Ukraine economy could contract by a third this year as the war ravages its economy, driving millions to flee.

MPs have heard that petrol prices could surge 50% this year, as sanctions on Russia hit oil supplies.

The French music group Believe has been advising partners how to work around sanctions imposed over the invasion of Ukraine.

While the Tate has severed relations with Viktor Vekselberg and Petr Aven after the Russian billionaires were sanctioned by the US and EU after the invasion of Ukraine.

Facebook and Instagram users are not allowed to call for the death of Vladimir Putin, according to an update issued by their parent company.

Meta had issued new guidance on Friday allowing content that condoned the harm of Russian soldiers, with media reporting at the time that it also permitted content urging violence against the Russian president.

However, Meta’s president of global affairs, Nick Clegg, has clarified the rules on posts, stating that “calls for the death of a head of state” are banned.

Squatters who have been surrounded by police on the balcony of a central London mansion owned by the oligarch Oleg Deripaska say they have “made their peace with getting arrested”.

Markets have risen in Europe, while oil price dipped back.

And in other news:

Goodnight. GW

Updated

MPs also heard that British businesses’ optimism is weakening as Russia’s invasion of Ukraine drives up inflation and hits consumer spending.

Tony Danker, director-general of the CBI, told the Treasury committee this afternoont that:

“Listening to them in the last two weeks, I think you are starting to see business confidence starting to waver now,”

Jagjit Chadha, director of Britain’s National Institute of Economic and Social Research (NIESR), also warned that growth could be wiped out by the surge in energy prices:

“At current energy and oil prices, the UK is skirting very close to a fall in activity. We’re going to be hovering around zero next year.”

European close

Europe’s stock markets have ended the day with solid gains, as traders cling to hopes of progress in the peace talks between Russia and Ukraine which resumed today.

Germany’s DAX rose 2.2%, while France’s CAC and Italy’s FTSE MIB both gained 1.7%.

The UK’s FTSE 100 index gained 0.5%, with banks, travel companies, retailers and housebuilders rallying.

Miners and oil companies fell, though, tracking the drop in commodity prices including crude and metals.

Craig Erlam, analyst at OANDA, says:

Stock markets rallied again at the start of the week as investors continue to be encouraged by reports of progress in talks between Ukraine and Russia.

While there has unfortunately been no de-escalation within Ukraine, there is hope that talks between the two sides could lead to a ceasefire. That may be premature, even misguided given how events have unfolded over the last few weeks. But stock markets have fallen considerably in that time and the recovery we’ve seen still pales in comparison.

The fact that the two sides are talking and in agreement that it’s heading in the right direction is obviously a good thing though which is why we’re seeing some relief. There’s still a long way to go and a certain amount of damage as a result of the invasion is irreversible as a result of the sanctions that have been imposed.

Higher commodity prices could fall back to more reasonable levels though in the event of a ceasefire which would certainly ease the significant headwinds currently facing the global economy this year.

Germany is also warned that an immediate boycott of Russian gas and oil supplies could hurt its own population more than Vladimir Putin, bringing mass unemployment and poverty.

“If we flip a switch immediately, there will be supply shortages, even supply stops in Germany,” the economic and energy minister Robert Habeck told public broadcaster ARD on Sunday, as Europe’s largest economy intensely searches to diversify its energy supplies in the medium term.

The Green party politician predicted “mass unemployment, poverty, people who can’t heat their homes, people who run out of petrol” if his country stopped using Russian oil and gas.

A late development, via Reuters:

Russian Finance Ministry said on Monday it has sent an order to a correspondent bank for the payment of coupons on eurobonds amounting to $117.2m.

The eurobonds in question are maturing in 2023 and 2043.

However, it’s not clear what currency Russia is trying to pay these coupons (interest payments), due on Wednesday, in.

As explained earlier, the coupon is meant to be in US dollars (and Russia’s $ reserves are frozen).

Unlike some other Russian debt, the bonds in question aren’t thought to includes a fallback clause that allows roubles to be used instead....

Ireland’s finance minister, Pascal Donohue has cautioned that Europe needs to be careful before banning Russian energy imports (as the US did last week).

Donohoe, who chairs the Eurogroup of eurozone finance chiefs meeting in Brussels, pointed out that any ban needs to ensure it hurts Russia, rather than Europe, given its dependency on Russian energy.

RTE’s Europe Editor Tony Connelly has tweeted the details:

The pullout of Western firms will also hit Russia’s oil output, Dr Amrita Sen told MPs.

She explained that without Western oil technology, production will be lower even if India or China step in.

Sen added that Russian production depends heavily on tax breaks, and Moscow is in no position to grant tax breaks in the current economic crisis.

These sanctions are crippling for the economy.

Our economists think you could get Russian GDP going down by 20%, potentially.

So longer term, Russian production is now ‘crippled’, Sen warns. From 11m barrels per day today, it could struggle to get above 8m or 9m bpd.

Petrol could hit £2.40 a litre, with risk of diesel rationing

UK petrol prices could surge by 50% due to sanctions on Russia cutting oil supplies, MPs have been warned.

This would push the cost of a litre of petrol to £2.40, from around £1.60 today, the Treasury Committee is heard this afternoon.

Dr Amrita Sen, Director of Research at Energy Aspects, told MPs that crude prices could rise to $160 per barrel, from around $110/barrel at present, as Russian oil is cut out of the market.

Sen explained that this increase would lead to a 50% increase in retail prices - unless the government introduced any tax changes to lower prices.

Before the Ukraine war, Russia exported around 5 million barrels per day of crude, making it the seond largest exporter after Suadi Arabia.

Nathan Piper, head of oil and gas reseach at Investec, told MPs that if those 5m barrels are removed, oil would rise a lot before demand destruction kicked in.

Consumers need to get ready in 2022 for continued increases in fuel prices, warned Piper (who was speaking in a personal capacity).

Diesel prices could rise even higher than unleaded, perhaps to £3 per litre, the committee heard. Europe imports around 50% of its diesel from Russia, while a third of UK imported diesel comes from Russia.

Sen said she fears that diesel rationing could come as soon as the end of this month in Germany, where it is widely used as heating oil as well as transport fuel. There could be repercussions in the UK as well.

Rationing would start with industrial users, Sen explained. As diesel prices rise, some energy-intensive users will drop out of the market. But governments might need to step in to mandate some cuts.

Sen also explained that if supplies can’t rise to replace Russian suppplies, then demand will need to balance the market.

In the past 50 years, there are only two times when oil demand fell due to high prices (both in the 1970s), which is why she thinks crude oil would have to be over $160/barrel before saw demand destriction.

Plus, as China can buy energy at any cost, so we could see UK refineries unable to pay high wholesale prices and having to cut production, she warned.

Updated

IMF warns Ukraine's economy could shrink by a thrd

The IMF has warned that Ukraine’s economy could shrink by as much as a third this year, as the Russian invasion drives the economy into a deep recession.

In a staff report just released, the IMF predicts that Ukraine’s GDP will fall by at least 10% this year, if the war is resolved quickly.

But the economy could suffer even more damage, judging by previous conflicts such as Iraq or Yemen.

The IMF says:

Domestic demand is expected to contract sharply as the war persists, with consumption limited to basic needs with the population displaced, supply disruptions, the destruction of infrastructure, and exceptional uncertainty.

This will be associated with a significant contraction of imports. Exports are also projected to decline due to disrupted logistics and production capacity and the closure of sea and airports.

This major shock happens against a background of already-high inflation (10 percent y/y in January) and high gas import prices, the spread of the Omicron variant, and the loss of financial market access.

There is massive uncertainty around the baseline, but at a minimum, staff expects a deterioration in the growth outlook of at least 13.5 percentage points relative to a pre-war baseline, with output falling 10% this year assuming a prompt resolution of the war and substantial donor support.

But the situation could be more worse. The IMF warn that the economic outlook is rapidly deteriorating, as the ongoing conflict causes widespread destruction to Ukraine’s productive capacity, and more citizens seek refuge in other countries.

Increasing loss of physical capital stock and mass migration would result in a significantly more pronounced output contraction, a collapse in trade flows, further diminished tax collection capacity, and a greater deterioration in the fiscal and external positions.

Data on wartime real GDP contraction from countries such as Iraq, Lebanon, Syria and Yemen suggest that between 25% and 35% of annual output could be wiped out, the staff paper says.

That means Ukraine’s eventual funding to repair its economy will be ‘significantly higher’ than current estimates, the IMF added.

St Petersburg World Energy Congress called off

Every three years, the great and the good of the global energy industry meets for the World Energy Congress.

This year’s event was due to take place in St Petersburg in October, so it should perhaps come as no surprise that it has been called off, as the Guardian predicted might happen earlier this month.

A spokesperson for the World Energy Council, which organises the event, said:

“Following strong signals received from the world energy community about the planned St Petersburg World Energy Congress, the board has concluded that it is not feasible for the congress to proceed in Russia.

The world needs the World Energy Council’s inclusive and whole system perspective more than ever. We look forward to physically bringing together our world energy community in a new location at the earliest possible opportunity.”

Some literature about the event remains online but the World Energy Council said the event would not go ahead, at least not in St Petersburg.

The event was subtitled: “Energy for humanity”.

British Prime Minister Boris Johnson and the bosses of offshore oil and gas companies discussed ramping up investment in the North Sea and boosting supply of domestic gas in a meeting today, a Downing Street spokesperson said.

“The Prime Minister and CEOs discussed increasing investment in the North Sea oil and gas industry and boosting supply of domestic gas.

This included how the UK can remove barriers facing investors and developers, and help projects come online more quickly”.

Updated

Russia to use Chinese yuan from its foreign exchange reserves

Russia has indicated it could use its reserves of Chinese yuan to pay Wednesday’s interest payment on its debts - in an attempt to avoid default.

According to Reuters, finance minister Anton Siluanov said that this move would mean Russia had met its obligations, having been frozen out of its reserves of US dollars, euros, sterling and yen because of international sanctions on its central bank.

Currently, Russia is blocked from accessing around half of its $640bn foreign exchange reserves, much of which are held overseas in major financial centres such as New York, London and Frankfurt. But it also holds reserves in yuan and in gold, which are still accessible.

Siluanov has told an interview with State TV that Russia’s finance ministry is preparing to service some of its foreign currency debt on Wednesday. However, such payments will be made in roubles if sanctions prevent banks from honouring debts in the currency of issue, he added.

Siluanov added:

“Is that a default? ... From Russia’s point of view, we are fulfilling our obligations.”

Here’s Reuters’ story:

Russia will use Chinese yuan from its foreign exchange reserves after Western sanctions blocked Moscow’s access to the U.S. dollars and euros in the reserves, Finance Minister Anton Siluanov said on Monday.

The finance ministry will instruct the payment of a coupon on a sovereign Eurobond issue due on Wednesday in foreign currency but payment could alternatively be made in roubles if the forex payment request is rejected by Western banks, he said.

From Russia’s point of view, paying a Eurobond coupon in roubles would still mean the government is fulfilling its foreign debt obligations, Siluanov added.

A ‘Eurobond’ is a bond issued in any currency other than the home currency of the country or market in which it is issued.

Wednesday’s interest payment (called a coupon) is on a loan made in US dollars, so the coupon payment would be expected in dollars too. So it isn’t clear that a repayment in yuan or roubles would meet the terms of the loan.

Updated

Music group Believe advises clients how to work around Russia sanctions

The French music group Believe, which has worked with artists including Björk, La Roux and Slayer, has pledged to keep its operations open in Russia and is advising partners how to work around sanctions imposed over the invasion of Ukraine, my colleague Mark Sweney reports.

The company, one of France’s biggest tech businesses valued at €1.1bn (£920m) on the Paris stock exchange, sent a newsletter on Friday to its partners in Russia, including record labels and artists, updating them on its operations in the region.

The update, which the Guardian has reviewed in both the original Russian and an English translation, assures its partners that it continues to operate and will continue to make scheduled payments, except to those whose accounts are with banks that have imposed sanctions.

The letter then goes on to offer solutions to legally circumvent the banking ban by advising opening a new account with a restriction-free bank and then linking it to Believe.

The translation says the company will continue to “promptly adapt our solutions in accordance with ongoing changes”.

The position adopted by Believe, which serves artists and independent music labels around the world to build popularity via social media and put their work on streaming platforms such as Apple Music, is in stark contrast to leading players in the music industry.

The world’s biggest record companies – Universal Music, Sony Music and Warner Music – have suspended or closed their operations in Russia in response to the invasion of Ukraine, as have the streaming services Spotify, YouTube, Deezer and TikTok.

Here’s Mark’s full story:

Wall Street has opened higher, as hopes for a breakthrough in the Ukraine-Russia peace talks is countered by worries about China.

The Dow Jones industrial average of 30 large US companies has gained 210 points, or 0.6%, to 33,154 points

Financial services stocks, healthcare, industrial companies and makers of consumer goods are all rising.

Energy stocks have fallen, though, following the drop in crude prices, with Chevron is down 2.5%.

Technology stocks are also weaker, on concerns that Covid-19 outbreaks in China will hit factory production and slow its economy.

Apple are down 1.5%, after supplier Foxconn halted operations in Shenzen following the lockdown.

The Nasdaq Golden Dragon China Index, which tracks Chinese companies listed on Wall Street, has tumbled up to 10%.

Updated

Full story: Squatters occupy Russian billionaire Oleg Deripaska’s London mansion

Squatters have occupied a mansion belonging to the Russian billionaire Oleg Deripaska in central London, my colleague Diane Taylor reports from Mayfair:

The five squatters in the building in Belgrave Square – two from eastern Europe, though not from Ukraine – say they feel their countries are also under threat from Vladimir Putin.

Their plan is to open up the mansion, which they say “has too many rooms to count” including a cinema and a wine cellar, to Ukrainians fleeing the war, along with other refugees needing shelter.

In a message to Russian oligarchs, the squatters said: “You occupy Ukraine, we occupy you.”

In a statement sent to the Guardian, the squatters said the invasion of Ukraine was the latest in a long line of human rights abuses by Putin’s government, including the bombing of Syria and mistreatment of LGBT people.

“This mansion will serve as a centre for refugee support for Ukrainians and people of all nations and ethnicities.”

Police carrying riot shields have entered the luxury property, Sky News adds.

Reporter Jessica Frank-Keyes from London World is tweeting from the scene too:

Citi widens scope of Russia pullout

Wall Street bank Citi is expanding its withdrawal from Russia, as the Ukraine war continues to drive an exodus of Western companies.

In a blog post, Citi says it is has decided to widen its exit beyond the long-planned sale of its Russian retail bank.

The departure will now cover “other lines of business” in Russia, where Citi provides a range of corporate banking services.

Citi says it is “moving with urgency to complete our assessment of our operations in Russia”:

In April 2021, we announced our intent to exit our consumer business in the country. We have now decided to expand the scope of that exit process to include other lines of business and continue to reduce our remaining operations and exposure.

Due to the nature of banking and financial services operations, this decision will take time to execute.

Last week, Goldman Sachs and JPMorgan announced they were pulling out of Russia.

Citi has also decided to stop soliciting any new business or clients, and is providing assistance to companies withdrawing from Russia.

We are providing assistance to multi-national corporations, many of whom are undergoing the complex task of unwinding their operations.

We will continue to manage our existing regulatory commitments and our obligations to depositors, as well as support all of our employees during this very difficult time.

According to Citi’s website it had about 500,000 retail clients and 3,000 corporate clients, and provides services such as cash management, trade finance, investment banking, corporate finance, lending, FX and hedging services.

Updated

UK petrol and diesel at new records

A Shell petrol station on Hadfield Road last week
A Shell petrol station on Hadfield Road last week Photograph: Matthew Horwood/Getty Images

UK fuel prices broke new records over the weekend, as the surge in crude prices pushed up costs.

The average cost of a litre of petrol at UK forecourts hit 163.5p on Sunday, up from 148p per litre a month ago, data firm Experian Catalist says.

Diesel hit 173.4p per litre, up from 151.6p/litre last month.

The drop in crude prices in the last week has not yet reached the forecourts, but prices could start to fall soon.

RAC fuel spokesman Simon Williams said the average price of petrol “appears to be on a collision course with £1.65 a litre”:

The price hikes seen over the weekend are still a result of the oil price rise which began at the start of the month and peaked early last week.

“As the oil price has now fallen back, we should hopefully reach the peak and start to see prices going the other way to reflect the big drop in wholesale costs seen at the end of last week, subject to no further spikes in the barrel price this week.”

Financial services firm Morningstar has predicted that a Russian debt default would cause less fallout than the 1998 default.

Morningstar research on the impact of the Ukraine war on markets found that:

  • While most global corporations’ direct exposure to Russia is limited, rising commodity prices and supply chain disruptions will pressure consumer sentiment and raise inflationary risks.

  • The conflict will lead to a temporary growth deceleration and inflation acceleration across most economies, as reflected in the market sell-off.

  • Russia may default on outstanding sovereign debt as early as later this month. Morningstar expects that fallout will be more limited than the 1998 default as foreign holdings of Russian debt are not as significant.

The 1998 crisis came after the Asian financial crisis drove down oil and metals prices, hitting Russia’s foreign exchange reserves. The cost of the first Chechen war also hit Russia’s government budget.

In summer 1998 Moscow devalued the rouble (by expanding its trading band), defaulted on domestic debt, and also declared a 90-day moratorium (or pause) on repayment of foreign debt repayments.

The rouble has strengthened today, with Russia’s currency trading around 110 to the US dollar, from 126/$1 on Friday night.

That’s still painfully weaker than before February’s attack on Ukraine, when one dollar was worth 80 roubles, with sanctions on Russia expected to hammer its economy this year.

Talks between Russia and Ukraine have resumed by videoconference, with communication between the two sides hard but ongoing, Ukrainian presidential adviser and negotiator Mykhailo Podolyak said on Twitter (via our liveblog).

Here’s Reuters’ take:

A glimmer of hope emerged after U.S. Deputy Secretary of State Wendy Sherman said Russia might be willing to have substantive negotiations over Ukraine.

But uncertainty about the fate of any negotiations remained.

“These talks aren’t likely to lead anywhere ... in fact, there’s a risk this conflict could widen from a diplomatic point of view,” said TD Securities’ head of emerging markets strategy Cristian Maggio, adding that markets were facing the twin risks of inflation and risk aversion amid the crisis.

Oil drops amid peace talk hopes and China lockdown fears

The oil price has fallen around 5% this morning, away from the 14-year highs seen just a week ago.

Brent crude has slipped back to $107 per barrel, on track for its lowest daily settlement since the start of March.

Brent jumped through $100 at the start of the Ukraine war last month, and hit $139 at the start of last week as the US pushed for a ban on Russian oil imports (announcing its own ban last Tuesday).

The Brent crude oil price in the last quarter
The Brent crude oil price in the last quarter Photograph: Refinitiv

Victoria Scholar, head of investment at interactive investor, explains:

Risk-on sentiment that is lifting European equities is also dampening trader appetite for oil as the downtrend looks set to continue after last week’s spike.

There is a sense of optimism that talks negotiations between Russia and Ukraine could be heading towards progress, which would ease some of the supply concerns in the market.

Oil demand could also weaken when the US Federal Reserve starts to raise interest rates, with the first hike expected on Wednesday.

Fresh Covid-19 lockdowns in China could also weigh on oil demand, points out Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

The rapid spread of Covid across China is now unsettling investors, with expectations that mass lockdowns will once again blight the economy with new daily cases hitting two year highs.

That’s helped push the oil price lower, with demand expected to take a hit if Chinese economic output falls. Worries about a China slowdown have also helped drive mining stocks lower on the FTSE 100 today, with Rio Tinto, Anglo American and Glencore among the biggest fallers on the index in early trade.

Updated

European stock markets are pushing higher as investors remain hopeful of progress in the Russia-Ukraine peace talks.

Germany’s DAX index is now up 3% today:

Deutsche Bank (+7.8%) are the top riser in Frankfurt, followed by Porsche (+6%) and Volkswagen (+5.8%), after VW reported on Friday night that its operating profits doubled in 2021.

The DAX plunged into a bear market last Monday (20% off its January highs), but has recovered since, now down ‘just’ 12% this year.

Pierre Veyre, analyst at ActivTrades, says:

Stocks traded higher in Europe on Monday, alongside US Futures, as investors bet on an improving geopolitical context at the beginning of a new round of diplomatic talks.

Market volatility may not be over as war continues for now, with Russia still targeting military facilities across Ukraine. In addition, the prospect of a military assistance from China, recently raised by US intel, may bring further shock to stock markets. However, market sentiment improved over the weekend as both Russia and Ukraine are set to resume discussions via video conference, in a bid to end the war following recent progress.

Men’s suit removed from UK ‘inflation basket’ as Covid changes working life

The traditional men’s suit has been removed from the basket of goods used to calculate the UK’s annual inflation rate – the latest casualty of the increase in working from home since the start of the Covid pandemic two years ago.

The Office for National Statistics said the change in working patterns meant the suit was no longer one of the 700 representative goods and services selected to measure the UK’s cost of living.

Announcing details of this year’s changes, the ONS said a new men’s formal jacket or blazer item was being introduced to ensure men’s formal and business wear was still represented in the selection.

Other items that will no longer be tracked include doughnuts, which are being replaced by multipacks of cakes, and coal, which has been removed in anticipation of the government ban on domestic sales of the fuel from next year.

Other items added to the basket for the first time this year also reflected lifestyle changes since the start of the pandemic. These included antibacterial surface wipes, sports bras/crop tops and collars for dogs and cats.

Protestors occupied Mayfair mansion linked to Deripaska

Protestors have occupied a mansion in Mayfair believed to belong to Oleg Deripaska, the Russian oligarch and Putin ally whose assets were frozen in the UK last week.

The group says they have occupied 5 Belgrave Square, and are occupying it as a protest.

Banners are hung outside reading “This property has been liberated” and “Putin go fuck yourself” on the outside, photos from the scene show:

Six police vans and more than a dozen officers are outside the property, according to LBC News.

A spokesman for the Met Police said:

“Police were called shortly after 01:00hrs on Monday, 14 March to a residential property in Belgrave Square, SW1.

“Officers attended and found that a number of people had gained entry and hung banners from upstairs windows. Officers remain at the location.”

Deripaska, who founded aluminum giant Rusal, was once Abramovich’s business partner.

They were among seven Russian oligarchs sanctioned in the UK last week, in a clampdown against those whose “business empires, wealth and connections are closely associated with the Kremlin”.

My colleague Rob Davies profiled Deripaska last week:

He hails from Krasnodar in southern Russia, where he was raised by grandparents after his widowed mother had to move away to find a job. After graduating from Moscow State university with a degree in physics in 1993, he became a metals trader.

Like many oligarchs, Deripaska owes much of his wealth to the tumultuous fall of the Soviet Union. He gained control of vast previously state-owned aluminium assets, which he later consolidated within the Rusal group, in partnership with Roman Abramovich, a fellow sanctions target.

Rusal, now part of Deripaska’s En+ Group, raised $1.5bn with a listing on the London Stock Exchange in 2017. But in 2018 the US included the company and Deripaska himself on a list of sanctioned entities and oligarchs, in reponse to “worldwide malign activity” by Russia.

UK Levelling UP secretary Michael Gove has been arguing that Russian oligarchs’ mansions could be seized and used to house Ukrainian refugees.

He told the BBC’s Sunday Morning programme:

“I want to explore an option which would allow us to use the homes and properties of sanctioned individuals – as long as they are sanctioned – for humanitarian and other purposes.”

The poorest households in the UK could see their cost of living jump by as much as 10% by this autumn if Russia’s invasion of Ukraine leads to a prolonged conflict, the Resolution Foundation thinktank has warned.

Tate galleries cut ties with sanctioned billionaires after Ukraine invasion

The Tate has severed relations with Viktor Vekselberg and Petr Aven after the Russian billionaires were sanctioned by the US and EU after the invasion of Ukraine.

Vekselberg, the founder of a Russian energy conglomerate and an associate of Vladimir Putin, was an honorary member of the prestigious Tate Foundation, a fundraising charity for acquisitions, exhibitions, education and capital projects.

The London gallery group said.

“Mr Vekselberg donated to Tate seven years ago and no longer holds his honorary membership title.”

Vekselberg has already been the target of US sanctions imposed in 2018.

On Friday, he was again among a list of Russian billionaires facing US sanctions, with the government saying he has “maintained close ties” with Putin. His jet and yacht have been identified as “blocked property”.

As well as the Tate, he has donated in the US to the Lincoln Center and Carnegie Hall – prior to sanctions being imposed.

Here’s the full story:

Hang Seng hits six-year low amid Covid and Russia worries

Anxiety over the pandemic and the Russia-Ukraine war have hit China’s stock markets today.

Hong Kong’s Hang Seng index has tumbled 5% to its lowest level since 2016, with technology shares hit particularly hard, while the mainland CSI 300 index fell 3%.

The Hang Seng share index over the last decade
The Hang Seng share index over the last decade Photograph: Refinitiv

The tumble follows report that US officials believe Russia has sought military support from China, amid claims that the Russian military is running short on certain kinds of armaments (as the Financial Times reported ovenight).

US national security adviser Jake Sullivan warned that Beijing that it would “absolutely” face consequences if it helped Moscow evade sweeping sanctions over the war in Ukraine.

Regulatory worries are also hitting China’s tech sector, after the Securities and Exchange Commission last week named five Chinese companies that could be removed from US stock markets for failing to meet audit requirements.

Plus, there are fears of widespread lockdowns, hurting economic growth, as China faces its biggest Covid-19 outbreak since the start of the pandemic two years ago.

My colleague Helen Davidson in Taipei reports on the lockdown in Shenzhen, home to 17.5 million people:

A government notice on Sunday said all residential communities were now under “closed management”, meaning they would be locked down. Every resident would undergo three rounds of testing, for which they were allowed to leave their homes, and all buses and subways were suspended.

All businesses in the finance and technology hub, which borders Hong Kong, were ordered to close or work from home unless they supplied food, utilities, or other necessities, according to the notice. On Monday afternoon Foxconn, which produces iPhones for Apple, announced it was among businesses suspending operations in Shenzhen. Its larger production site in Zhengzhou remains open, and the company said it would reopen when advised by the local government.

No one can leave the city except in special circumstances and with a negative test result obtained within 24 hours prior to exit. Local communities and residences had established monitoring teams with a “warm-hearted service hotline”, it said.

European markets lifted on peace talk optimism

European stock markets have risen in early trading, on hopes of that peace talks between Russia and Ukraine today will make progress.

Germany’s DAX index has gained 2%, with Italy’s FTSE MIB up 1% and France’s CAC 0.8% higher, adding to Friday’s recovery.

Both sides have offered cautious optimism ahead of this morning’s negotiations, with a Russian delegate yesterday saying there has been “substantial progress”. However, there’s little evidence that Russian president Vladimir Putin’s position has changed, with the attack on a major military base close to Poland’s border killing at least 35 people on Sunday.

The UK’s FTSE 100 index is flat, though, with mining companies and oil giants lower.

Commodity prices, such as oil, are easing off, another sign that markets are cautiously optimistic of progress.

Mohit Kumar of Jefferies says positive sentiment from both sides has lifted optimism:

Over last few days, we have turned more optimistic that both parties could be heading towards a compromise.

The invasion has not gone according to Putin’s plans which might make him more amenable to a compromise if he gets a face-saving exit. While we wish for an end to the conflict, we would still advise caution against ramping up risk. There is a material risk that negotiations could fail and things could escalate with attacks too close to the Polish border or further casualties and incursion in Kyiv.

Shelling has continued today, with two people killed and three injured when a shell hit a residential building in north-west Kyiv this morning, Ukraine’s state emergency services has said.

Our Russia-Ukraine war liveblog has the latest news,

The Wall Street Journal reports that Russian prosecutors have warned Western companies that they could arrest corporate leaders who criticize the government.

The WSJ says:

Russian prosecutors have issued warnings to Western companies in Russia, threatening to arrest corporate leaders there who criticize the government or to seize assets of companies that withdraw from the country, according to people familiar with the matter.

Prosecutors delivered the warnings in the past week to companies including Coca-Cola Co. , McDonald’s Corp. , Procter & Gamble Co. , International Business Machines Corp. and KFC owner Yum Brands Inc., the people said.

The calls, letters and visits included threats to sue the companies and seize assets including trademarks, the people said.

Here’s the WSJ story.

Russia said last week it had drawn up plans to seize the assets of western companies leaving the country, as the Ukraine war led to an exodus of leading firms.

IMF managing director Kristalina Georgieva predicted yesterday that a Russian default would not lead to a global financial crisis, telling CBS’s Face the Nation that:

When you look at the total exposure of banks to Russia, it is about a hundred and twenty billion dollars. Not negligent, but definitely not systemically relevant.

And to what we are also seeing is that while inevitably we are going to downgrade our growth projections for 2022, it is still going to be a positive growth rate.

Georgieva also warned that Russia faces a deep recession, while many countries will see energy and food prices rise.

This chart shows how the value of Russia’s debts has plunged since the war began, while the cost of insuring them using a credit default swap has soared:

As Reuters puts it:

The government is due to pay $117m on two of its dollar-denominated bonds. But it has been signalling it will not, or if its does it will be in roubles, tantamount to a default.

Technically it has a 30-day grace period, but that is a minor point. If it happens it would represent its first international default since the Bolshevik revolution over a century ago.

In 1998, Russia defaulted on rouble-denominated debts during a financial crisis.

Introduction: Russia threatens to make external debt payments in roubles

Russia’s finance minister Anton Siluanov (centre) as a meeting at the Kremlin last month.
Russia’s finance minister Anton Siluanov (centre) as a meeting at the Kremlin last month. Photograph: Alexei Nikolsky/TASS

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Russia is taking steps to pay international bondholders in roubles rather than dollars just days before a key interest payment on its external debt, a move that could make a debt default more likely.

Russia’s finance ministry said on Monday it had approved a temporary procedure for repaying foreign currency debt, but warned that payments would be made in roubles if sanctions prevent banks from honouring debts in the currency of issue.

Finance minister Anton Siluanov said in a statement:

“Claims that Russia cannot fulfil its sovereign debt obligations are untrue,”

“We have the necessary funds to service our obligations.”

Paying Eurobond repayments in roubles could be seen as tantamount to a default, with Siluanov accusing Western countries of trying to organise such a move.

“The freezing of the central bank and government’s foreign currency accounts can be seen as a desire from several Western countries to organise an artificial default.”

Moscow is scheduled to make a combined $117m in interest payments this Wednesday on two dollar-denominated bonds, although it has a 30-day grace period to make the payments.

The cost of insuring Russia’s debt against default has surged since the Ukraine war, as traders anticipate that these insurance contracts could be triggered if payments are made in roubles, or not made at all.

Yesterday, IMF chief Kristalina Georgieva warned that a Russian default was no longer “improbable”, as Western sanctions mean Moscow cannot access much of its foreign currency reserves.

Georgieva told CBS’s Face the Nation programme:

“In terms of servicing debt obligations, I can say that we no longer think of Russian default as an improbable event. Russia has the money to service its debt, but cannot access it.

What I’m more concerned about is that there are consequences that go beyond Ukraine and Russia.”

According to Siluanov yesterday, foreign sanctions have frozen around $300bn of the $640bn that Russia had in its gold and forex reserves,

Eurozone finance ministers will discuss the economic consequences of the war in Ukraine today at a regular eurogroup meeting, with surging energy and commodity prices likely to hit the recovery.

European markets are set to open higher.

China’s stocks have fallen heavily, with the CSI 300 down 3% after the government locked down Shenzhen in an attempt to bid to halt Covid outbreak, and investors worry about Beijing’s close relationship with Russia.

The agenda

  • 9.30am GMT: Change to the UK consumer price inflation basket of goods and services for 2022
  • 12.30pm: Arrivals for eurogroup meeting in Brussels
  • 3.30pm GMT: IMF to release staff report on Ukraine
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