UK closes its financial sector to Russia
Russia's continued aggression against Ukraine has caused the UK to close its doors to Russian funds. In spite of unlikely war with Russia, the UK has the ability to strangle the financial flow of Russian exports and imports as London is one of the largest clearing cities.
UK Foreign Minister Liz Truss announced today that the UK will "bring in a full asset freeze on all Russian banks in days," starting with the addition of three more banks to the sanctions list. Truss also announced the ban on Russian banks clearing payments in sterling. Moreover, the sanctions will prevent Russia from raising debt in the UK and prevent "all 3 million Russian businesses from accessing British capital markets."
It also suggests banning exports to Russia "across a range of critical sectors," including microelectronics, marine and navigation equipment, to undermine the military-industrial complex in Moscow. The UK economy will be adversely affected by the sanctions and with disruptions across food and energy it is unlikely inflation will come down any time soon.
The pound is finishing the London session strong as the euro remains relatively weak and flows come out of the US dollar. The Swiss franc has remained the strongest currency relative to the others though the yen has been mixed today.
The UK FTSE100 is also doing well today supported by the likes of BAE Systems plc, who will be manufacturing a lot of the systems being sent by the UK to be used in Ukraine. HSBC and BP are among the largest fallers today.
As a result of the global sanctions imposed against Moscow after its invasion of Ukraine, Danish company Maersk has stated that it is considering suspending all deliveries to and from Russia. Many Asian countries are also backing out of delivering or importing goods to Russia due to payment fears. Banks are unable to create a letter of credit and there is also a high probability of secondary sanctions as we saw when Iran was sanctioned by the USA.
According to the US Census Bureau's advance report published this afternoon, the US trade deficit in January was $106.5 billion, showing a rise of $7.1 billion or 7.1% over the previous month. Imports rose by $4.4 billion to $262.5 billion.
In January, wholesale inventories totalled $798.2 billion, an increase of 0.8% compared to the previous month and a significant 17.8% jump on an annualized basis, this deficit increase takes the good trade balance to an all-time deficit high. Seasonally adjusted retail inventories rose by 1.9% monthly in January.
The markets have been watching the headline news for word on how well the negotiations between Ukraine and Russia are going. The gold rally has stalled again today as the risk is reduced whilst the talks go on, but $1900 /oz is proving to be a sticky level.
The USDCAD has dropped significantly as the markets prepare for continued higher oil prices but also the Bank of Canada’s rate decision this week. The USDCAD will likely visit the 1.2700 again but the move today shows that there is a path of least resistance to the downside.