The cost of Russia‘s invasion of Ukraine will become a lot clearer this week, with a previously unthinkable sovereign default looming, more emergency central bank measures likely and a stock market crash guaranteed if it reopens.
Moscow’s “special operation” in its former Soviet neighbour has cut Russia off from key parts of the global financial markets by the West, triggering its worst economic crisis since the 1991 fall of the Soviet Union.
Wednesday could mark another low. The government is due to pay $117 million 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.
“Default is quite imminent,” said Roberto Sifon a top analyst at S&P Global which has just hit Russia with the world’s biggest ever sovereign credit rating downgrade.
That state-run energy giants Gazprom and Rosneft have made international bond payments in recent days and around $200 billion of still-unsanctioned government reserves does leave a sliver of hope that might not happen, though those odds look grim.
Wednesday could be busy for other reasons as well.
Russia’s Vedomosti financial newspaper reported central bank and Moscow Exchange sources as saying this week that suspended local equity and bond trading could resume by then.
It would be chaotic at least in the short-term. Russia’s big firms which also listed on the London and New York markets, have saw those international shares slump virtually to zero when the crisis broke out and have now been stopped.
“There are many financial institutions that are sitting on Russian assets that they want to get rid of but they can’t,” said Rabobank currency strategist Jane Foley.
“They have no real option but to sit on them. But that means that when they are allowed to trade, the selling could be quite persistent.”
RECESSION
It will not finish there. Russia’s central bank is scheduled to meet on Friday having already more than doubled interest rates to 20% and brought in widespread capital controls to try and prevent a full-blown financial crisis.
Western investment banks like JPMorgan now expect the economy to plunge 7% this year due to the combination of bank run worries, sanctions damage and the instant inflation surge caused by a 40% slump in the rouble.
That compares to predictions of 3% growth at the beginning on the year. It also means a peak-to-trough dive of around 12%, which would be larger than the 10% tumble in the 1998 rouble crisis, the 11% lost during the global financial meltdown and the 9% slump of the COVID-19 pandemic.
“The CBR might hike rates a bit further, that would be safest assumption right now,” said Arthur Budaghyan, chief emerging market strategist at BCA Research.
The more crucial moves as this stage however could be further capital control measures to try and keep the financial system cocooned.
“Ensuring the banks can function, can still process payments and keep credit flowing to the economy so it can at least function in some capacity is much more important,” Budaghyan said.
(Reporting by Marc Jones; Editing by David Gregorio)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
