Daily Comment (April 28, 2022)

by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM EDT] | PDF

Good morning! Today’s report begins with an update on the War in Ukraine, while Europe is coping with Russia cutting off gas supplies. Next, we discuss international news, followed by our economics and policy coverage, and we close with the latest COVID-19 news.

Russian forces, learning from their earlier mistakes, have changed tactics as it tries to take over Ukraine. Earlier in the conflict, Russian troops tried to blitz Kyiv, attempting to overwhelm the Ukraine forces and bring down the capital. After that plan failed, Moscow became more systematic in its fight to take over the country. Although Russia is still relying heavily on air bombardments, it is trying to encircle Ukraine’s forces on the ground as it seeks to take over areas around the city of Izium in eastern Ukraine. So far, the new approach has had limited success, but it is still unclear whether the Russian forces are capable of achieving their objective.

Additionally, Russia may be opening another front in its war. Russian proxies in the Moldovan territory of Transnistria are falsely claiming Ukrainian forces are planning to attack the region. The accusation has prompted concerns that the Kremlin could be preparing to launch a missile strike on Moldova. By attacking Transnistria, the Kremlin may seek to escalate the war to include other areas in Europe. Ukraine has adopted a similar strategy as it broadens attacks on Russian cities along its border.

After Russia decided to cut off gas flows to Bulgaria and Poland, the European Union described the move as blackmail and maintained it would not comply with the Russian demand for natural gas payments to be made in rubles. Responding to rising gas prices, the Italian government has moved to fund a $6.3 billion aid package to protect consumers and companies from the increases. Greece announced it would deliver natural gas to Bulgaria to compensate for the gap. Poland has already been preparing for this scenario. Despite the early signs of unity, there is some evidence that the European coalition is fracturing. Brussel’s ambiguous advice on ways to pay for Russian energy while avoiding sanctions has led to complaints from member countries. Meanwhile, European firms have started exploring ways to comply with Russian demands. However, the energy problem cuts both ways, as the end of winter means the demand for Russian natural gas is falling. There is speculation that a compromise between the sides is possible; however, countries in Europe, particularly Germany, will look to diversify their supply away from Russia.

Other Russia-Ukraine News

 International News

  • China is looking to stimulate its economy to avoid another pandemic-related slowdown. Earlier this week, President Xi Jinping promised new infrastructure spending to promote growth. On Wednesday, China’s State Council pledged to allow internet platforms to grow and give out cash handouts to the poor. The move comes as the communist party looks to boost morale before the 20th National Congress of the Chinese Communist Party.
  • In a speech, Kim Jong-un announced North Korea is willing to use Nuclear force not only to deter actions but against any country that moves against “Pyongyang’s interest.” The threat is another sign that North Korea has growing confidence in its nuclear capabilities.
  • At $1.05, the euro is trading at its lowest level against the dollar in nearly 20 years. The Ukraine crisis and a lack of monetary tightening have prevented the currency from appreciating. Although the European Central Bank is signaling that it is prepared to raise rates sometime this year, fears of an economic slowdown could lead to a rethink. Overall, a weaker euro should make equities within the EU attractive for dollar-based investors.

U.S. Economics and Policy

  • The Democrats are reluctant to push President Biden’s Build Back Better plan, given the closeness of the midterm elections and the president’s low approval ratings. Democrats are expected to lose control over the House and the Senate in November; thus, Democrats need to act sooner rather than later if it wants to get the law passed.

COVID-19: The number of reported cases is 511,562,837, with 6,228,088 fatalities. In the U.S., there are 81,188,133 confirmed cases with 992,721 deaths. For illustration purposes, the FT has created an interactive chart that allows one to compare cases across nations using similar scaling metrics. The CDC reports that 724,696,315 doses of the vaccine have been distributed, with 574,232,736 doses injected. The number receiving at least one dose is 257,423,254, while the number of second doses is 219,483,386 and the number of the third dose, granting the highest level of immunity, is 100,316,900. The FT has a page on global vaccine distribution.

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