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Russia’s financial system shaken after US imposes new sanctions
A new series of tough US sanctions sent jitters through the Russian financial system on Thursday and forced Moscow’s main financial trading platform to halt transactions in dollars and euros, further raising the cost of President Vladimir Putin’s war against Russia. Ukraine.
The Treasury Department’s sharp escalation of sanctions prompted former Russian President and Prime Minister Dmitry Medvedev, now a senior security official, to call on the population to “inflict maximum damage” on Western societies and infrastructure in retaliation. Meanwhile, several major Russian banks and brokers on Thursday blocked access to hard currency business accounts.
The sweeping new sanctions — announced by the Treasury Department on Wednesday — singled out the Moscow Exchange, Russia’s main financial market, for helping Russians “profit from the Kremlin’s war machine,” and amplified the risk of sanctions. secondary to any foreign financial institution doing business. with Russia’s war economy.
The Moscow Stock Exchange operates trading markets for stocks, bonds, derivatives, currencies and precious metals.
The new sanctions also targeted China-based companies that sell semiconductor chips to Russia, as well as more than 300 individuals and entities in Russia, Europe, Asia and Africa.
Russia has managed to increase spending on military production since it invaded Ukraine in 2022, despite facing the largest barrage of sanctions and export controls ever unleashed by the United States and its allies against a country’s economy.
Instead of giving in, Russia has turned to China and India and a myriad of shadowy intermediaries to circumvent restrictions, with the West unable to fully cut itself off from Russian goods..
The push to tighten sanctions against Russia reflects a growing recognition among policymakers that measures so far, including unprecedented export controls, have proven insufficient to prevent the Kremlin from obtaining Western parts for its military supply chain. , said Edward Fishman, who served as a senior official. State Department official in the Obama administration.
Ukrainian authorities have documented thousands of foreign-made parts in Russian military supplies recovered from the battlefield despite Western restrictions.
To reduce trade, the Treasury this week expanded “secondary sanctions,” which seek to make foreign banks unwilling to process Russian bank payments.
The secondary sanctions, which target entities doing business with sanctioned Russian companies or individuals, are now applicable not only to entities working with Russia’s defense industry, but also those working with any sanctioned Russian company or individual, including the largest banks in the country.
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US officials wanted to implement the sanctions before a meeting of world leaders at a Group of Seven summit in Italy. “There is enormous frustration that export controls are not working as well as would be expected,” Fishman said. “They are basically saying that if we isolate Russia financially, it could make it much more difficult for it to pay for its military imports.”
In response to the new measures, Medvedev, who has become one of the most vociferous Russian officials in condemning the West, called on Russians to “look for vulnerabilities” in Western economies and to “attack them in all areas.”
“We must find problems in their most important technologies and attack them mercilessly,” he said. “Literally destroy their energy, industry, transport, banking and social services.”
Shares on the Moscow Exchange initially plunged on Thursday but recovered later. Economists and former senior officials have warned that the new measures banning the trading of dollars and euros on the central exchange would have a significant impact on the cost of doing business for Russia’s export- and import-based economy, possibly further fueling inflation, which already is high – officially at 8 percent.
As a result, Russian companies now have to convert dollars and euros on the Moscow interbank market rather than on the centralized exchange, allowing banks to charge high commissions for each transaction and increasing the spreads at which dollars and euros are bought and sold, reducing transparency.
Although Russians have increasingly switched to the Chinese yuan since the February 2022 invasion – 54 percent of all currency transactions on the Moscow Exchange are now Chinese – dollars and euros are still important to Russia’s economy.
“Russia still relies on using Western currencies for trade with all countries except China,” said Janis Kluge, an economist at the German Institute for International and Security Affairs. “There is a huge demand to trade these currencies.”
The new sanctions, Kluge said, “will increase costs for importers and exporters” and add new “layers of complexity” to Russian business transactions. “The impact is initially psychological,” he said, and further increases Russia’s isolation.
Kremlin spokesman Dmitry Peskov appealed for calm and told Russians to look to the Central Bank as a “mega-regulator capable of ensuring stability” after Russian banks began drastically increasing the dollar exchange rate. following the ban on trading on the Moscow Exchange.
Some have increased rates to as much as 200 rubles per dollar, Russian newspaper Kommersant reported. The day before, the rate set on the Moscow Exchange was just under 90 rubles per dollar.
The Central Bank said it would set daily exchange rates for the dollar and euro based on aggregate data on purchases and sales from commercial banks. It set Thursday’s official rate at 88.2 rubles per dollar.
A former senior Russian financial official said the Russian economy would not run out of dollars or euros, but that the new sanctions would clearly increase the growing costs of Putin’s war on the economy.
“This is not a question of financial stability, but it is a question of financial costs,” said the former senior official. “Import costs will increase and this will be an additional factor that will lead to higher prices.”
The huge increase in government spending on Russia’s defense industry, which is further driving inflation, will eventually become unsustainable, the former senior official said. There are growing signs that the Kremlin was aware of this, which is why tax increases for next year have already been signed into law.
“If oil prices do not grow further, sooner or later the budget will reach a ceiling and it will not be possible to continue spending without printing money,” said the former official. “But there is another instrument, which is taxation, and it is no coincidence that a law was approved that increases taxes on companies.”
Putin announced the increases for 2025, including an increase in corporate profits tax from 20% to 25%, as well as increases in income tax. He referred to them as “fine-tuning” the system.
“Putin has many ways to continue financing the war machine this year and next, but after that, it becomes more difficult,” said Alexandra Prokopenko, a former adviser to the Central Bank of Russia based in Berlin.
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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