Russia/Ukraine War Update - May 23rd, 2022

*** MILITARY SITUATION ***

Russian forces made only minimal gains in eastern Ukraine on May 22. New reporting confirmed that Russian troops previously recaptured Rubizhne in northern Kharkiv Oblast, on May 19. Russian forces are likely committing additional reinforcements to hold their positions on the west bank of the Siverskyi Donets River in northern Kharkiv—rather than withdrawing across the river to use it as a defensive position—to prevent any further Ukrainian advances to the north or the east that could threaten Russian lines of communication to the Izyum axis.[1] Ukrainian sources additionally confirmed previous Russian-claimed advances around Popasna, and Russian forces likely seek to open a new line of advance north from Popasna to complete the encirclement of Severodonetsk while simultaneously driving west toward Bakhmut, though Russian forces are unlikely to be able to fully resource both lines of advance simultaneously.

-Ukrainian sources confirmed that Russian forces have secured local advances to the north and west of Popasna since at least May 20. Russian forces likely seek to push further west toward Bakhmut and north to support the encirclement of Severodonetsk but remain unlikely to achieve rapid advances.

-Russian forces will likely attempt to hold positions west of the Siverskyi Donets River against Ukrainian attacks (rather than retreating across the river) to prevent further Ukrainian advances from threatening Russian lines of communication to Izyum.

-Russian occupying forces continued filtration and deportation procedures in and around Mariupol.

-Russian forces are likely preparing to resume offensives on the southern axis.

-Russia’s military said it destroyed a major western arms consignment, west of Kyiv. Sea-launched Kalibr missiles were used, reported the Interfax news agency.

*** ECONOMIC & POLITICAL ***

-US Pentagon is reportedly weighing deploying special forces to guard the embassy in Kyiv, according to WSJ.

-Lithuania has become the second European country within a month to have electricity supplies from Russia halted. Inter RAO, the only importer of electricity from Russia to Lithuania, confirmed the suspension of deliveries would begin on Sunday, according to Russian state-media Tass News Agency. Earlier this month, Inter RAO's Nordic branch stopped sending power to Finland after formally applying to join NATO. "According to the decision of the electricity exchange operator Nord Pool, trading in electricity generated in Russia, which was carried out by Inter RAO (through its subsidiary Inter RAO Lietuva), is terminated" starting from May 22, Lithuania's Energy Ministry said in a statement.

-There’s little in retailing that Walmart and Target aren’t prepared to handle. So it was jarring that over a 24-hour period the two scions of the trade posted weak first-quarter profits that appeared to blindside management at both. Part of the bottom-line blowup was due to fuel, which soared to record highs following Russia’s Feb. 24 invasion of Ukraine. Part of it was due to margin pressures caused by an unfavorable sales mix as consumers shifted their buying from higher-margin goods like electronics to less profitable items like groceries. An extension of that was an overshoot of inventory-stocking activity, which came back to bite the retailers after waning concerns over the COVID-19 pandemic pushed more consumer buying toward services and “experiences” and away from goods.

There’s little that retailers can do about fuel prices. It can be argued they should have expected the pandemic-driven buying spree from March 2020 until the end of 2021 to peter out and that they should have planned their inventory strategies accordingly. Yet demand forecasting has always been a tough nut to crack, and the market is where it is. Inventory build may also have been the result of supply chain delays at the start of the year that resulted in some late deliveries of impaired freight.

Inventory levels as of March, when compared to activity in March 2019 after inventories stabilized following a major pull-forward in 2018 ahead of the Trump administration’s China tariffs, produce a mixed bag of results. Unsurprisingly given the current dearth of motor vehicles, the ratio of vehicle and parts inventories to sales has fallen considerably, according to federal government data analyzed by Michigan State University. Apparel inventories to sales also declined over those periods, as did e-commerce.

However, furniture, home furnishings and appliances, building materials and garden equipment, and a category known as “other general merchandise,” which includes Walmart and Target, among others, reported higher inventory-to-sales ratios, according to government data analyzed by Michigan State.

For the latter sectors, the change has happened fast, according to Jason Miller, logistics professor at MSU’s Eli Broad College of Business. As of November, inventory-to-sales ratios were at pre-COVID levels, Miller said. They have since exploded upward. Miller said he expects a “cooldown” in retailer order volumes, even if inflation-adjusted sales stay constant, as retailers look to reduce their existing stock. He also expects retailers to launch major discounting programs to expedite the inventory burn. Fewer orders within certain categories bodes ill for carriers whose networks are strongly tied to inbound lanes to retailers’ distribution centers, Miller said.

-The top U.S. general told the ​​U.S. Military Academy West Point’s class of 2022 that the nature of war is changing and the current rules-based international order is being threatened by Russia and China. “Right now, at this very moment, a fundamental change is happening in the very character of war,” Chairman of the Joint Chiefs of Staff Gen. Mark Milley said on May 21. “We are facing, right now, two global powers: China and Russia, each with significant military capabilities, and both fully intend to change the current rules-based order.” He made the remarks during a speech to the graduating cadets at a commencement ceremony in West Point, New York.

-Quoting DB's chief equity strategist, Binky Chadha, Reid notes that the current -18.7% correction is actually the 6th largest non-recession (so far) correction in post WWII history, only behind > July-98 (around LTCM and Russia default), > Sept-18 (QT and Fed hikes finally bite), > May-46 (post WWII), > Dec-61 (so called Kennedy slide) and finally > Aug-87 (including the Oct-87 crash). course, if one includes recessions, there are fifteen larger post WWII sell-offs with the median recession sell-off at -23.9%. At this point, markets become remarkably binary.

In the event we do slide into recession, the Deutsche Bank strategists see the sell-off going well above average, i.e., into the upper half of the historical range given elevated initial overvaluation. This means -35% to -40% or S&P 500 at 3000. However, in the event we do not and growth and the labor market hold up in 2022 - which they won't -  they expect the market to rally back to 4700-4800 by year-end as equity positioning rebounds from very low levels. And just to add another twist, while Binky’s baseline view is that the economy doesn’t slide into recession this year and the S&P 500 ends the year at 4750. However, that's before the economy does slide into a recession next year From here, the Deutsche Banker - who alone among his Wall Street peers has forecast a US recession in 2023 - expects the US to move towards the average recession decline in the near term which would put the S&P 500 at 3650 (current 3900), a similar near-term view to that of Morgan Stanley's Michael Wilson.

-EU’s infectious-disease agency is to recommend member states prepare strategies for possible vaccination programmes to counter increasing monkeypox cases, according to FT. It was also reported that Austria confirmed its first case of monkeypox and that Switzerland also confirmed its first case of monkeypox in the canton of Bern, according to Reuters.

-US and several countries walked out on the APEC trade ministers’ meeting in Bangkok to protest the Russian invasion of Ukraine, according to Reuters.

-Turkish inflation data has been in the spotlight at a time when consumer prices are exploding at the fastest pace since the turn of the century, a key concern for President Recep Tayyip Erdogan’s government just over a year before elections.

Furthermore, according to Bloomberg, concerns have swirled among researchers over what they call a divergence between the agency’s price statistics and the surge in the cost of living felt by wage earners. While TurkStat reported an annual inflation of 70% in April, ENAGroup, an independent group of scholars who’ve put together an alternative consumer price index, put the figure at as high as 157%.

-Belgium has become the first country to introduce a mandatory 21-day monkeypox quarantine for those who contact the virus, after three cases were recorded in the country. The infections were all linked to a festival in the port city of Antwerp, according to the Daily Mail, as Belgium is now one of 14 countries to confirm outbreaks of the viral disease (in addition to suspected, but not confirmed cases in Austria and Greece). On Sunday, US President Joe Biden said that the recent spread of monkeypox is "something that everybody should be concerned about."

-YouTube has taken down more than 70,000 videos and 9,000 channels related to the war in Ukraine for violating content guidelines, including removal of videos that referred to the invasion as a “liberation mission”

-Ukraine has said it will not agree to any ceasefire deal that would involve handing over territory to Russia, as Moscow intensified its attack in the eastern Donbas region. “The war must end with the complete restoration of Ukraine’s territorial integrity and sovereignty,” said Ukraine’s presidential chief of staff, Andriy Yermak. The comments came as Russia said it was willing to resume peace negotiations, Russia’s lead negotiator said Sunday, but the initiative to continue them is with Kyiv. Kremlin aide Vladimir Medinsky claimed in an interview with Belarusian TV that “Russia has never refused talks”.

-Polish president Andrzej Duda became the first foreign leader to address the Ukrainian parliament in person since the invasion began, backing Ukraine’s stance on territorial concessions and warning the international community that ceding any territory to Russia would be a “huge blow” to the entire West.

-Ukrainian president Volodymyr Zelenskiy said that 50 to 100 Ukrainians were dying every day on the war’s eastern front in what appeared to be a reference to military casualties. The heaviest fighting is focused around the twin cities of Sievierodonetsk and Lysychansk in Luhansk, one of the two regions that make up the Donbas.

-Ukraine’s parliament on Sunday banned the symbols “Z” and “V”, used by Russia’s military to promote its war in Ukraine but agreed to president Volodymyr Zelenskiy’s call to allow their use for educational or historic purposes, Reuters reports.

=Technicians linked to the Syrian military’s infamous barrel bombs that have wreaked devastation across much of the country have been deployed to Russia to help potentially prepare for a similar campaign in the Ukraine war, European officials believe. Intelligence officers say more than 50 specialists have been in Russia for several weeks working alongside officials from Vladimir Putin’s military.

-The Moscow-installed mayor of Enerhodar, a southern city of Ukraine and the location of Europe’s largest nuclear power plant, has been wounded in an explosion. Russian news agency RIA Novosti reported that Andrey Shevchik was in intensive care.

-A bid by Ukraine to join the European Union would not be finalised for “15 or 20 years,” France’s Europe minister said. “We have to be honest. If you say Ukraine is going to join the EU in six months, or a year or two, you’re lying. It’s probably in 15 or 20 years, it takes a long time,” Clément Beaune said.
 
-The UK is in active discussions to ship weapons to Moldova – a country located along Ukraine’s southwest border – according to Foreign Secretary Liz Truss, who said the arms could help to fend off a future Russian attack. Speaking to the Telegraph in an interview published on Friday, the cabinet minister claimed Moscow has “ambitions to create a greater Russia,” suggesting it could next set its sights on Moldova, which contains the Russian-speaking breakaway region of Transnistria. “I would want to see Moldova equipped to NATO standard. This is a discussion we’re having with our allies,” Truss said, though she did not elaborate on what kind of arms were being considered. She deemed Moldova a “vulnerable” state, again alleging a “broader” threat posed by Russia.

-The US plans to keep 100,000 troops in Eastern Europe for the foreseeable future, potentially even increasing the number if it perceives a threat from Russia to NATO or its two new prospective members, Sweden and Finland, several officials told CNN on Friday. If NATO carries out more military exercises in the area or the “security environment” changes, the US could bring in more troops or even build more military bases in the region, the officials said. The plans are reportedly under consideration following a Thursday meeting of NATO military heads in Brussels, and they will be presented to a meeting of the alliance’s defense ministers next month. Leaders of NATO countries will then meet in Madrid at the end of June.

-Washington has been deliberately lying about Ukraine’s prospects to ever join NATO, knowing that the former Soviet republic isn’t a legitimate contender to qualify for membership in the Western military bloc, former US Ambassador to Russia Michael McFaul has acknowledged.

-US President Joe Biden hasn’t ruled out a face-to-face meeting with Kim Jong-un, but insists that the North Korean leader would need to show the right attitude for it to happen. Biden was asked about the possibility of such a summit in Seoul on Saturday during his visit to South Korea, which opened his first Asian tour since taking office. A meeting with Kim “would depend on whether he’s sincere and whether he’s serious,” the US president said.

-The signs that the U.S. economy is starting to fall apart are rising to the surface, further indicating that a recession is likely on its way. In addition to both Target and Walmart plunging this past week on earnings reports that missed Wall Street's expectations, other indicators that the country is heading toward recession are also starting to surface. For example, American households are taking on "record amounts of debt", according to BNN Bloomberg, as higher prices make it tougher for the consumer to pay for staples like gasoline and food. Mortgage rates on the rise are also squeezing the budgets of consumers while businesses both big and small grapple with increased raw material costs. Ethan Harris, head of global economics research at Bank of America, told Bloomberg: “I don’t think you can have a completely benign soft landing of the economy at this point. We’re either going to have a weak economy or a recession.” The report notes that many economists believe there is enough momentum and demand in the economy to make it through the end of this year without beginning to falter. But the outlook isn't as rosy for next year.

-China launched military drills in the contested South China Sea as U.S. President Joe Biden arrived in South Korea to meet with President Yoon Suk-yeol and promote his forthcoming economic plan for the region. Biden is currently touring East Asia to develop better relations with the nation’s partners in the Indo-Pacific and drum up support for his Indo-Pacific Economic Framework, which he is expected to announce in Japan on May 23. The visits with top leaders in South Korea and Japan also underscore the United States’ efforts to work with allies and partners in the region on countering the rising aggressions from Beijing, which administration officials have described as the leading threat to the United States. China’s Maritime Safety Administration subsequently announced that it would be conducting exercises in the South China Sea through Monday. It said non-Chinese aircraft and vessels would be prohibited from entering the area but gave no further details.

-Bloomberg reports crop scouts from the wheat industry have begun to examine plants in farm fields in Kansas to Oklahoma to Nebraska. Harvest is just a few weeks away, and there are concerns devastating droughts have caused damage in US wheat country. Some farmers already are writing off losses from parched grains. The US Department of Agriculture expects lower yields in Kansas, the top-growing state for hard red winter wheat, a staple relied on for bread flour. The shortfall is seen by USDA as pushing national production to the smallest since 1963, fueling fear of global food shortages as war in Ukraine and weather challenges elsewhere puts supplies at risk. It's very clear the world is now looking at North America for robust wheat production, and with that, there need to be optimum conditions and strong yields. However, that may not be the case. "This is a very challenging year with not a lot of good news," said crop scout Romulo Lollato, a wheat specialist at Kansas State University. He pointed out that minimal rainfall and freezing temperatures in early April could have damaged crop yields. Aaron Harries, vice president of research and operations for Kansas Wheat, said, "it's been a weather roller coaster" across the Midwest. Meanwhile, wheat futures in Chicago are soaring, near all-time highs, as traders are pricing in what could be a year of low harvest production. Last week, the World Agricultural Supply and Demand Estimates (WASDE) report published by the USDA showed wheat production in Ukraine is expected to plunge by one-third this season compared with last year.  There are also concerns in Canada, India, and China about harvest declines due to adverse weather conditions. Then there's the Black Sea region, plagued by war that will plunge crop production this year and next.

-Shortly after Reuters published an exclusive story that the White House was looking to move advanced anti-ship missiles to Ukraine, an official in Kiev said that the US is making a plan to sink Russia’s Black Sea Fleet. Ukrainian Ministry of Internal Affairs adviser Anton Gerashchenko tweeted, "The US is preparing a plan to destroy the [Russian] Black Sea Fleet. The effective work of the Ukrainians on [Russian] warships convinced [the US] to prepare a plan to unblock the [Ukrainian] ports. Deliveries of powerful anti-ship weapons are being discussed."

Gerashchenko cited the Reuters report on Washington’s effort to ship Harpoon and Naval Strike Missiles to Ukraine. The missiles have a range of up to 300 km and cost $1.5 million each. Three US officials and two Congressional sources told the outlet the White House was still working out the details for sending the advanced weapons to Ukraine. Logistical issues and the possibility the US would have to remove a launcher from one of its ships to send to Ukraine are current obstacles to completing the transfer. Responding to a question from Newsweek, the State Department did not deny it was working on a plan to take out the Russian fleet. “As the conflict is changing, so too is our military assistance to deliver the critical capabilities Ukraine needs for today’s fight as Russia’s forces engage in a renewed offensive in eastern Ukraine," a spokesperson said.

However, the Department of Defense issued a sharp denial of the claims made by the Ukrainians official. “I can tell you definitively that that’s not true,” Pentagon spokesman John Kirby told reporters Thursday afternoon. The Pentagon denial applied only to the Ukrainian official’s assertion the US was helping sink the Black Sea fleet, and did not refer to the proposed anti-ship weapons transfer. Gerashchenko said the attack would help to open up Ukraine’s ports. Russia currently controls the Black Sea and maintains a blockade. The UN has called for an easing of restrictions in the sea to allow food exports from Ukraine to help alleviate global food shortages.

Moscow has offered a diplomatic solution to the Black Sea standoff. On Thursday, the Kremlin proposed lifting the blockage in exchange for sanctions relief. The Russian Foreign Ministry said the problem goes beyond the blockade and includes Western sanctions restricting fertilizer exports. "You have to not only appeal to the Russian Federation but also look deeply at the whole complex of reasons that caused the current food crisis. [Sanctions] interfere with normal free trade, encompassing food products including wheat, fertilizers and others," Russian Deputy Foreign Minister Andrey Rudenko said.

-Late Friday Russia's Defense Ministry announced that the last Ukrainian fighters holed up in the giant Azovstal steelworks plant emerged, days after there were reports that top Azov commanders still holding out. The ministry said it counted 2,439 defenders had emerged and surrendered over the past few days. The final holdout group that was last to come out was tallied at 531. The Russian military's now total control over the sprawling plant and city of Mariupol is considered the be its greatest victory over three months of war. The final 500+ came out Friday, after Azov regiment commander Denys Prokopenko giving the order to stop defending the city. "The higher military command has given the order to save the lives of the soldiers of our garrison and to stop defending the city." Prokopenko had said in a video posted to Telegram. The Ukrainian side has presented it as an end to the "combat mission" while Moscow emphasized the Azov militants, who are neo-Nazi in ideology, were defeated and surrendered. Prokopenko those under him to preserve "life and health ... and stop defending the city."

-The United States will provide nearly $40bn, or £32bn, in aid for Ukraine, according to a statement from the White House. The news comes after the US Senate approved Biden’s massive new military and humanitarian aid bill for Ukraine on Thursday. The final vote was 86 in favour, 11 against.

-Russia’s Gazprom on Saturday halted gas exports to neighbouring Finland.

-Turkish President Recep Tayyip Erdogan raised objections directly with the leaders of Finland and Sweden over their twin bids to join the NATO alliance in separate phone calls on Saturday. Both leaders had met with President Joe Biden at the White House two days prior where they attempted to give assurances that they would "commit to Turkey's security" if admitted to NATO. In the calls with Finnish President Sauli Niinisto and Swedish Prime Minister Magdalena Andersson, Erdogan stressed that they must get serious about dealing the "terrorist" Kurdish Workers’ Party, or PKK. In prior days both the Turkish president and his foreign minister have issued a firm 'no' on the possibility of the Scandinavian countries joining the alliance.

-Finland’s top legislator has ruled out placating Turkey to win approval for the country’s NATO membership bid, saying parliament can’t change laws and extradite “innocent people” whom Ankara considers to be terrorists.

-Scientists who have monitored numerous outbreaks of monkeypox in Africa say they are baffled by the disease’s recent spread in Europe and North America. Cases of the smallpox-related disease have previously been seen only among people with links to central and West Africa. But in the past week, Britain, Spain, Portugal, Italy, U.S., Sweden and Canada all reported infections, mostly in young men who hadn’t previously traveled to Africa. There are about 80 confirmed cases worldwide and 50 more suspected ones, the World Health Organization said. France, Germany, Belgium and Australia reported their first cases Friday.

-Europe should expect a wave of monkeypox cases in the coming months, according to Hans Kluge, the World Health Organization's top official on the continent. “As we enter the summer season… with mass gatherings, festivals and parties, I am concerned that transmission [of monkeypox] could accelerate,” Kluge said on Friday. The number of the infected could rise because “the cases currently being detected are among those engaging in sexual activity,” and many don't recognize the symptoms, he added.

COVID CASES USA 7-DAY AVG
108,274 MAY 20 2022
28,889 MAY 20 2021