A general view of the Kremlin, Red Square and St. Basil’s Cathedral in central Moscow.
AFP via Getty Images
Russia’s first default on its foreign debt in more than 100 years is the latest sign that the sanctions levied against the country after the Ukraine invasion have consequences. But it’s probably not that important.
To be sure, Russia’s default on ruble-denominated bonds in 1998 was a big deal. It forced highly leveraged hedge fund Long Term Capital Management to collapse, a precursor of the financial crisis that struck a decade later. It’s possible that there are some other institutions that will get into trouble now, and it may take a little while for them to emerge.
But there are plenty of reasons why this time is different. For one, the default is a logical consequence of freezing Russia out of the global banking system. The country has the money – oil and gas payments are still flowing in with little interruption – it’s just not allowed to transfer the funds to creditors.
Furthermore, investors have had months to prepare. It was clear it was coming as soon as the U.S. shut down the last remaining loopholes for payments at the end of May. And it’s unlikely that there will be a formal declaration of default, since sanctions also mean that ratings firms haven’t covered Russian government debt since mid-March, and bondholders have incentives not to be hasty in trying to get their money back.
The biggest impact of sanctions are still on energy prices. Oil prices aren’t coming down as long as Western powers are working to wean themselves off Russian supply. Faster inflation and rising interest rates, meanwhile, are bringing the global economy to its knees.
The bond default may be a symbolic win for sanctions, but the damage they’re causing is much more widespread than that.
—Brian Swint
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Russia Defaults on Foreign Debt as Sanctions Mount. Gold Is Next.
Russia failed to make contracted payments on its foreign debt for the first time since 1918 as sanctions prevented funds from reaching creditors. The U.S. and Group of Seven allies will ban Russian gold as they continue to raise the pressure on President Vladimir Putin’s regime over its war on Ukraine.
- Russia missed payments on two foreign-currency bonds late Sunday, the Journal reported, citing bondholders who had yet to see funds deposited.
- Russia exports roughly $19 billion of gold a year, one of its biggest exports next to energy. The ban on gold “will further isolate Russia from the global economy,” a Biden administration official said. President Joe Biden on Sunday praised the continuing unity of the global alliance against Russia.
- Europe and the U.S. have already moved to ban Russian oil, though Putin is still able to sell oil elsewhere in the world. Russian airstrikes hit Ukraine’s capital city of Kyiv on Sunday, including civilian neighborhoods.
- Oil prices have retreated from their peaks in the spring, drifting around $107 a barrel for WTI, the U.S. benchmark price on Monday. Strategists at Stifel said in a note that a cease-fire in Ukraine could result in $85 a barrel oil by December 2022.
What’s Next: Biden will visit the Middle East, including Saudi Arabia, in July, to discuss energy security. His visit will follow a decision on production levels this Thursday by the international oil cartel led by the Saudis and their allies, including Russia.
—Liz Moyer
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Major Economies Look Weaker as Central Bankers Meet in Portugal
The latest early indicators for economic growth in the U.S. and Europe showed signs of weakening just before central bankers, including Federal Reserve chair Jerome Powell, convened in Portugal.
- The S&P Global flash purchasing managers index for the U.S. slipped to 51.2 in June, a five-month low and just above the 50 mark that separates expansion from contraction. The euro-area PMI index fell to 51.9, a 16-month low.
- The U.S. manufacturing index was the weakest in almost two years, while European factory output has started to contract. Price pressures remained elevated.
- Powell and his international peers are heading to Sintra, Portugal for a conference hosted by European Central Bank President Christine Lagarde. The event starts Monday and is the ECB’s version of the Kansas City Fed’s annual forum in Jackson Hole, Wyoming.
What’s Next: Central bankers will probably give their views on whether the global push to raise interest rates is working as planned. While policy makers try to bring the fastest inflation in decades under control, rising borrowing costs will also constrain economic growth.
—Brian Swint
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Companies React to Abortion Ruling With Expanded Health Benefits
U.S. companies moved to expand their healthcare benefits for employees and others covered under their plans to include travel costs and out-of-state medical treatment, including for abortions, after the Supreme Court overturned Roe v. Wade.
- Dick’s Sporting Goods is offering up to $4,000 travel expense reimbursement for employees, spouses and dependents under the company health plan for those who need to travel outside their home states for an abortion.
- Alaska Air Group said it would reimburse travel expenses “for certain medical procedures and treatments.” JPMorgan Chase is expanding its pre-existing healthcare travel benefits to include abortion, a spokesperson told Barron’s.
- CVS Health told Barron’s it would allow colleagues and consumers to choose the medical and pharmacy benefits they need, “including making out-of-state care accessible for our employees.” Disney told employees it would provide workers with reproductive care “no matter where they live.”
- Eight states including Utah, Oklahoma, Kentucky, and Texas have already outlawed abortion, and several others including Tennessee and Idaho are expected to ban or severely restrict it in coming weeks.
What’s Next: Access to Food and Drug Administration-approved pills to terminate pregnancies at home within the first 10 weeks of a pregnancy may still be available where abortions are banned, though some states are expected to dispute that. Women can still travel to seek care in states where abortions remain legal.
—Josh Nathan-Kazis and Janet H. Cho
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FDA’s Advisors to Vote on Makeup of Covid Boosters
The Food and Drug Administration’s vaccine advisors will vote Tuesday on whether current Covid-19 vaccines should be updated to target more recently-circulating variants to the virus in a test of the early argument in favor of mRNA-based vaccines: They could be updated to match the virus as it evolved.
- Pfizer and BioNTech said newer versions of a booster vaccine targeting the original Omicron variant drew a stronger immune response than their initial vaccine and was also effective against newer subvariants of Omicron that are now more prevalent.
- Moderna said its newest vaccine targeting the BA. 1 and original Covid-19 strain also induced a stronger antibody response against those Omicron subvariants, called BA. 4 and BA. 5, than its original vaccine.
- Sanofi and GSK have released strong data on their combination protein-based vaccine. The FDA’s vaccine advisors earlier this month supported authorizing Novavax ’s protein-based vaccine.
- Representatives from Moderna, Pfizer, and Novavax are scheduled to speak at Tuesday’s meeting.
What’s Next: An FDA briefing document says its vaccine experts could recommend updating primary vaccines and boosters, updating only boosters, updating boosters to include a component targeting Omicron, or updating boosters to target more recent Omicron strains.
—Josh Nathan-Kazis and Janet H. Cho
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Carvana’s Growth Ambitions Complicated by Paperwork, Lawsuits
About two dozen people are trying to get class action status on a lawsuit against online car retailer Carvana that alleges some of its customers went years without legally being able to drive the vehicles they bought as the company grapples with complaints of registration delays and other paperwork issues.
- Carvana said the lawsuit has “no substantive merit” and has sought dismissal to have the claims handled in arbitration as outlined in the original sales contracts. A judge in Easton, Pa., is deliberating whether to let the case proceed.
- Carvana sales jumped 74% last year, but in chasing market share, Carvana was selling cars faster than it could get them registered to their new owners, Barron’s reported. Carvana said only a small number of delays were the result of selling cars before it had title.
- The scrutiny comes at a difficult time for Carvana, which has seen flagging sales, steep losses, and a 90% drop in its stock price from the August 2021 peak. CEO Ernie Garcia III has vowed to cut $125 million in spending, including laying off 12% of workers.
- Carvana hopes to get growth through its $2.2 billion purchase of Adesa U.S., the country’s second-biggest car-auction business, giving it a national network of parking lots and garages to recondition more vehicles for resale.
What’s Next: Carvana is expected to report a $1.77 per-share loss in the second quarter, not as steep as the $2.89 per share loss reported in the first quarter, according to FactSet. For the 2022, analysts expect a per-share loss of $7.16 compared with last year’s loss of $1.63.
—Jacob Adelman
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—Newsletter edited by Liz Moyer and Rupert Steiner
