Russia Invades Ukraine


At the close of business on Friday, global equities were quite volatile, but little changed on the week. The yield on the US 10-year note rose this week to 1.98% from 1.93% a week ago. The price of a barrel of West Texas Intermediate crude oil decreased to $91.03 from $91.58, breaking $100 per barrel for the first time since 2014. Volatility, as measured by the Cboe Volatility Index (VIX), was little changed from a week ago at 27.8 after moving significantly higher during the week.



Russia launches military action in Ukraine
I considered it highly unlikely that this would actually happen, but on Wednesday evening our time, Russia launched an invasion of its neighbour Ukraine, calling it a special military operation. US President Joe Biden authorized additional US troops to be stationed in Germany, as NATO allies looked to bolster defences in Europe. Thousands of people across Russia have come out to protest Putin’s decision to invade neighbouring Ukraine, ignoring Russian government warnings that demonstrators would be arrested.

It would appear that on the 100th anniversary of the founding of the USSR, Putin has started a campaign to rebuild the USSR to its former state. This means that if he is successful in taking Ukraine, then other neighbouring states are next in line. Sanctions may be useful along with restrictions on Russia’s use of SWIFT, but I fear that military action by NATO will be required to stop this madman.

We continue to monitor developments. However, it is important to note that the entire Russian economy is only the size of Texas. Canada’s trade with Russia is estimated to be only about 700 million annually. With strong earnings from companies in developed markets, dividend increases and mergers, it did not surprise me to see the strong market performance at the end of the week.



Commodity prices surged amid fears of a supply disruptions after Russia invaded Ukraine. Canada is a large exporter of oil, precious metals, and, of course, grains, and we expect the Canadian economy to benefit in these areas because of this conflict.



President Biden said the United States has introduced a new wave of sanctions against Russia in a broad effort to isolate Moscow from the global economy. Biden said that the totality of the penalties will target trillions in assets and include specific measures against Russian elites and banks, including state-owned VTB Bank.

Earnings News
With about 92% of the constituents of the S&P 500 Index having reported for Q4 2021, blended earnings per share shows that earnings growth is running at 30.8% while sales have risen about 15.9% compared with the same quarter a year ago.



The European Union agreed to another round of sanctions on Russia that will target the financial, energy and transportation sectors. The EU will also target dual-use goods which can be put to both civilian and military uses and Russian individuals. The UK put in place economic sanctions targeting five Russian banks and three wealthy individuals who will see their assets frozen and be banned from travelling to the country.



China will unveil bigger tax and fee cuts this year and raise payments to local governments to offset its hit to revenues amid efforts to support a slowing economy. Tax fee cuts will be larger in 2022 than last year’s 1.1 trillion yuan in reductions. One big worry is will China support Russian efforts?

Here are my thoughts. I believe China is flying under the radar, which is exactly where it wants to be. Russia has been reaching out to China, Syria and Iran as sanctions are imposed and from what I can see, China is weighing its options in considering its own domestic economic problems. Financial aid from China would divert government funds away from its domestic needs and it would make itself a target of US sanctions. I don’t believe China can afford another trade war or restricted access to US dollars. When countries pick sides in a global conflict, they do so based on how it benefits them. China is wisely keeping its options open.

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