Interesting that both Russian and Ukrainian assets both sold off heavily earlier yesterday as markets begun to wake up to conflict risk - a few foreign banks had finally published reports highlighting the rising conflict risks.
Russian credit had been 40bps wider, OFZs down 1-2 points, and the ruble close to 1%.
Then the news on SWIFT came out and Russia took back half of losses and even Ukraine saw a few bottom fishers.
That was a bit weird in my view as a) News that the Germans are blocking SWIFT sanctions was not really new news as US officials had dropped strong hints already that SWIFT sanctions were unlikely but had been put in there for the uncertainty/effect. But there was realisation that Russia would see that as an “act of war” - Russian officials had said as much. b) But pulling SWIFT sanctions surely just increases the risk of conflict as Putin knows sanctions will be softer if he does go in. This is not some kind of compromise to help peace making. The West is just saying if you invade we are more divided, less able to present a United front and less likely to roll out anything which actually hurts and thereby deters you.
It’s still idiotic by Germany as publically ruling out SWIFT undermines the West’s leverage - it also begs the question as to who’s side is Germany on, given NS2 and the ban on selling defensive arms to Ukraine.
The FT has a decent piece on sanctions impact on Russia, the even use the phrase I coined years ago of “Fortress Russia” to define Russian economic policy settings.
https://www.ft.com/content/a2eaba73-cec8-4a0f-b991-7de558bb0ee1
Notable here that Russian technocrats have served their master well by giving him the robust economic balance sheet to be able to invade Ukraine and significantly ride thru likely Western sanctions resulting. They can still though be very painful, particularly for Russian elites who could soon find their offshore assets put beyond reach - bad for the PL.
Germany might not be willing to arm Ukraine, but the U.K. is, with the defence Secretary Ben Wallace announcing supply of anti tank kit, and being flown in now - but weirdly the flights are avoiding German air space. Remarkable if Germany, a NATO “ally” is withholding this to the U.K.
Ben Wallace also wrote a superb defence of Ukraine, and call out of Putin in the attached statement:
French and German foreign ministers are due in Moscow today and are expected to offer fresh Normandy format talks. I doubt Putin will buy this as the leaking of diplomatic cables by Moscow before XMAS made it clear it saw no value in this process. Putin only wants to talk on the great power level - himself with Biden and Xi. The only reason he might accept it is to buy a bit more time to get more troops in location - note the Mike Kofman view that enough troops will be in place in 1-2 weeks, and weather is NOT a factor. See attached which really is a superb watch.