Client Weekly Update – Friday 18 March

Local update


US secretary of state Antony Blinken said he did not see “any signs” that Vladimir Putin was “prepared to stop” the war in Ukraine, as he poured cold water on hopes of a diplomatic settlement and vowed that US officials would investigate war crimes committed by Russian forces in the country.

Western officials applauded the Ukraine-Russia peace talks but said they are dubious the negotiations would ever reach fruition given the differences in the two countries’ positions.

Ukraine’s potential peace deal with Russia includes security guarantees from a number of major nuclear powers including the US, UK, France, China and Russia. Western officials were blindsided by the proposal and questioned how it would work and whether it can be agreed between Moscow and Kyiv without commitments from the guarantors first.

US president Joe Biden and China’s President Xi Jinping will discuss the war in Ukraine during a call scheduled for today.

Economic developments:
  • JPMorgan processed interest payments from the Russian government due on two of its bonds, boosting investor expectations that Moscow will avoid defaulting on its debt. Ukrainian MPs have urged western companies including the UK’s Marks and Spencer and France’s Société Générale to pull out of Russia
  • In stock markets, the US benchmark S&P 500 closed up 1.2 per cent and the Nasdaq Composite gained 1.3%. Europe’s Stoxx 600 closed up 0.4%
  • Brent crude, the international oil benchmark, settled at $106.64 a barrel, up 8.8%
Military developments:
  • The US has estimated that about 6,000 Russian troops have died so far. Ukraine claims 14,000 Russian casualties, while the Kremlin says the figure is less than 500
  • Slovakia is willing to send Ukraine the S-300 long-range missile defence system as soon as the US or other allies can provide a replacement system or security guarantees
  • Footage circulating on social media of Russian troops moving out of Georgia towards the Ukrainian front has raised questions as to whether peace talks were little more than a ploy to allow Russia to regroup and win time while reinforcements arrived
  • Rescue efforts were underway at a theatre in Mariupol, after Russian forces on Wednesday dropped a bomb on the building

Ukrainian and Russian military claims cannot be independently verified.

  • Oil prices settle more than 8% higher after IEA warns of ‘supply crisis

Benchmark oil prices ended Thursday’s session more than 8% higher following a troubling warning from the International Energy Agency about the outlook for the energy market. About 3mn barrels of Russian crude could be cut from global markets, in what the energy watchdog said threatened to become the “biggest supply crisis in decades”.

The price of Brent crude, the international oil benchmark, has fluctuated since Russia’s invasion of Ukraine three weeks ago. It approached $140 a barrel this month on the back of concerns about supply disruptions and sanction-led shortages, before falling back below $100 this week.

Brent settled 8.8% higher at $106.64 a barrel on Thursday, while West Texas Intermediate, the US crude contract, finished 8.4 per cent higher at $102.98 a barrel.

The IEA on Wednesday cautioned that, from April onward, Russian oil production could fall by 3mn barrels a day — 3% of the world’s market — as sanctions bite and buyers shun the country’s supply. Exports would fall by 2.5mn b/d, the Paris-based agency said.

Joint Europe-Russia Mars rover mission suspended following sanctions

Europe’s mission to land a life-seeking rover on Mars cannot launch as planned in September, following the suspension of collaboration with Russia, and is set to be delayed by at least four years, said the European Space Agency on Thursday.

The €1.68bn ExoMars project was to be launched on a Russian Proton rocket and then use a Russian landing mechanism to put its Rosalind Franklin rover on the Martian surface.

ESA’s ruling council has told director-general Josef Aschbacher to look for alternative options, but the mission will require extensive re-engineering following Russia’s exclusion. The earliest launch date would be 2026 “and even that looks very challenging, technically and financially”, he said.

The next possibility, when Earth and Mars will be in the correct planetary alignment, is 2028.

In addition, all launches with Russian Soyuz rockets from Europe’s Spaceport in French Guiana have been “put on hold” indefinitely following the withdrawal of engineers by Roscosmos, the Russian space agency.

Four ESA missions are affected – two Galileo navigation satellites this year, the Euclid space telescope and EarthCare climate satellite in 2023.

Aschbacher is also leading a search for alternative launchers that could substitute for Soyuz. Europe’s new Ariane 6 rocket is due to make its first flight this year. But he added: “I am not excluding looking at launchers other than European ones.”

On the International Space Station, currently crewed by four Americans, two Russians and a German, astronauts and cosmonauts are continuing to work together normally, Aschbacher said.

Mixed markets

As of this morning, the FTSE 100 are down 22 points, whereas European markets are mixed. The CAC 40 is higher by 2.79%, while the DAX is down 0.90%.

US stock futures were lower too, with the S&P 500 futures 24 points lower, or about 0.5%. The decline is similar in the Nasdaq and will erase about half of yesterday’s gain.

Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 6.11% and the Nikkei 225 rose 0.65%. The Hang Seng lost 0.09%.

Bank of England raises interest rates

The Bank of England has raised interest rates back to the pre-pandemic level of 0.75% t in response to the likelihood that the war in Ukraine will push inflation to around 10% this year.

Threadneedle Street’s monetary policy committee (MPC) voted 8-1 to raise borrowing prices by 0.25 percentage points, marking the first time in more than two decades that the Bank has hiked rates at three consecutive sessions.

The Bank of England said Russia’s incursion had prompted it to reassess its projection for the peak of inflation this year, which was now projected to be “several percentage points” higher than the 7.25% it had previously predicted.

The other eight MPC members agreed that new measures were needed to bring inflation back to the government’s objective of 2%, which is now at a three-decade high of 5.5%. They emphasised the labour market’s tightening as well as upward pressures on costs and pricing.

The meeting’s minutes are expected to fuel fears that the economy is heading for a period of stagflation — slow growth with significant upward price pressures.

“Developments since the February report are likely to accentuate both the peak in inflation and the adverse impact on activity by intensifying the squeeze on household incomes,” the Bank said. “Global inflationary pressures will strengthen considerably further over coming months, while growth in economies that are net energy importers, including the UK, is likely to slow.”

Jersey’s finance sector to monitor Russian clients

The financial sector has been advised to increase monitoring of all customers with ties to Russia or Belarus, citing a “heightened risk” of money laundering and financing of terrorism or weapons of mass destruction.

External Relations Minister Ian Gorst and the Jersey Financial Services Commission issued a joint statement warning that the Island’s largest industry needed to be “particularly vigilant” because the financial system was more likely to be “abused” by those seeking to support Russian President Vladimir Putin’s war effort.

Money laundering, terrorist funding, and proliferation finance — the collection of monies engaged in the purchase of chemical, nuclear, or biological weapons – were also recognised as increased concerns, according to the statement.

Jersey is enforcing sanctions “in lockstep” with the United Kingdom, with over 1,000 Russian persons and businesses sanctioned in the aftermath of Ukraine’s invasion.

‘The Government of Jersey and the Jersey Financial Services Commission consider that, currently, there is a significantly increased level of money laundering/terrorist financing/proliferation financing risk in providing services to customer relationships associated with Russia and Belarus,’ the joint statement says.

‘Regulated entities are required to carry out due diligence on a risk basis and this obligation is ongoing. Therefore, those customer relationships are expected to be subject to a higher level of due diligence.’

The statement adds: ‘This applies regardless of the individual or organisation being subject to sanctions, and entities should familiarise themselves with common indicators of sanctions evasion.

‘In accordance with JFSC guidance, firms should actively consider the adequacy of their risk management arrangements in respect of any relevant customer relationships.

‘Transactions and mandate decisions should be subject to senior management approval and there should be appropriate oversight in place by the board, supported by compliance monitoring.’

Should a finance firm identify a customer relationship with a non-Jersey resident Russian/Belarussian person or entity, they should consult the JFSC’s guidance on beneficial owners and controllers.

Covid travel restrictions have ended in the UK

Unvaccinated immigrants will no longer be required to take tests as of 04:00 GMT (the rule had already been repealed for the vaccinated), and passenger location forms will be phased out.

This comes nearly two years after the first Covid lockdown restrictions were implemented in the United Kingdom. The lifting of the rules, according to travel executives, was the “final game-changer.”

Aviation minister Robert Courts said: “Everything we have worked for – every jab, every test, and the sacrifices made by the whole country means that finally, nearly two years on, we can all travel without bureaucratic restrictions.”

The administration stated that the modification was purposefully timed before the Easter holidays, but that contingency procedures have been developed to respond to any future Covid variants.

Derek Jones, chief executive of Kuoni, a tourism company, said bookings had surged in recent months. “The removal of all travel restrictions is the final game-changer – people can now go on holiday or visit family and friends overseas without all of the stress that comes with testing before they return home,” he said.

“Finally, we’ve seen the back of the unpopular and ineffective passenger locator forms, which were always a hassle to complete. Travel has been in turmoil for two years but now it’s back.”

Thousands of UK steelworkers victims of pension regulation scandal

Thousands of steelworkers were victims of pension regulatory failings, with some losing up to £489,000, according to an official assessment, prompting charges that the UK financial watchdog was “asleep at the wheel.”

The findings of the National Audit Office concern a 2017 scam involving members of the British Steel pension scheme, many of whom were persuaded to move their retirement money by advisers who subsequently collected enormous fees.

The NAO, the government’s public spending watchdog, said some of those who transferred the cash to a different provider “have suffered significant financial losses because they were provided with unsuitable advice … and they have not been compensated fully”.

It said, “the regulated financial advice market failed to protect them”. The Financial Conduct Authority was, and still is, the relevant watchdog.

That prompted Dame Meg Hillier, chair of the public accounts committee, to say the case “was a failure from top to bottom … The FCA, whose job it is to regulate these firms, was asleep at the wheel”.

The FCA has recently come under fire for its handling of another investment crisis involving London Capital & Finance, a firm that folded in 2019, leaving many people with large losses.

The British Steel pension plan was a significant “defined benefit” program with over 130,000 participants that was reorganized in 2017 following financial difficulties suffered by British Steel’s then-owner Tata Steel.