Russia/Ukraine War Update - June 14th, 2022

  *** MILITARY SITUATION ***

-As many as 3,000 British nationals are fighting alongside Ukrainian troops against Russian forces, Britain’s The Independent newspaper reported on Tuesday, citing a foreign volunteer unit commander. Mamuka Mamulashvili, who leads the so-called Georgian Legion, told journalists that a total of nearly 20,000 foreign fighters are currently serving in volunteer units in Ukraine. According to Mamulashvili’s estimates, almost a seventh of them are UK citizens, or almost 3,000.

-The intense battle for Sievierodonetsk will be remembered as one of the “most brutal” Europe has ever seen and is taking a “terrifying” toll on Ukraine, Volodymyr Zelenskiy said on Monday evening, as Russian forces move closer to capturing the strategic eastern city.

-Russian forces have cut off all last routes out of Sievierodonetsk by destroying all three bridges to the embattled eastern city, according to the governor of the Luhansk region, Serhiy Haidai. In a video update, Haidai said Russia had not “completely captured” the city and “a part of the city” was under Ukrainian control.

-Russian artillery was hitting an industrial zone where 500 civilians were sheltering in the eastern Ukrainian city, Haidai added. Ukrainian troops in the city must “surrender or die”, a Russian-backed separatist leader in the self-proclaimed republic in Donetsk warned.

*** ECONOMIC & POLITICAL ***

-All three major American stock market indices continued their downward slide on Monday, amid growing expectations of significant rate hikes from the Federal Reserve and an emerging consensus among economists that the country is entering a recession. The Dow Jones Industrial Average closed at 30,516.74, a drop of almost 900 points or 2.79% from the morning’s opening. At one point, shortly before closing, the index of blue-chip securities was down more than 1,000 points. The Nasdaq Composite took a similar beating, closing at 10,809.23 down 530.80 points, or 4.68%. A similar story was unfolding over at the S&P 500, which closed at 3,749.63, down 151.23 or 3.88% on Monday.

Meanwhile, the price of gas at the pump reached the national average of $5 a gallon on Saturday, an all-time high.

-The risk of nuclear weapons being used is higher “than at any time since the height of the Cold War,” the Stockholm International Peace Research Institute (SIPRI), a leading weapons watchdog, has warned. The shrinking global stockpile of nuclear weapons is now expected to begin growing once again, according to SIPRI Yearbook 2022.

-Economist Larry Summers, an adviser to two Democrat presidents and treasury secretary under Bill Clinton, has found a new culprit behind America’s inflation crisis: Republicans who downplay the severity of the January 2021 US Capitol riot. “I think the banana Republicans who are saying that what happened on January 6 was nothing or OK are undermining the basic credibility of our country’s institutions,” Summers said on Sunday in a CNN interview. “And that, in turn, feeds through for inflation. Because if you can’t trust the country’s government, why should you trust its money?”

-Citing the US military’s carbon emissions footprint, a group of senior Senate Democrats officially introduced a bill on Monday that would require the Pentagon to buy electric vehicles starting later this year. Spearheaded by Elizabeth Warren (D-Massachusetts) and Mazie Hirono (D-Hawaii), the Military Vehicle Fleet Electrification Act would apply to “non-tactical” cars, vans or light-duty trucks bought or leased by the Department of Defense (DOD) starting in fiscal year 2023.

-Back in March, when the average mortgage rate was still "only" 4.5%, we anticipated the coming rate explosion and warned that "Housing Affordability Is About To Crash The Most On Record." Fast forward to today when the latest 30Y average mortgage has just surged to a stunning 6.13% from 3.25% at the start of the year, the highest rate since the great housing crash of 2007/2008, in the process sending housing affordability - just as we warned - to the lowest on record.

Alas, it's about to get even lower, because a simple back of the envelope calculation reveals that the jump in mortgage rates from 3.25% to 6.13% means that new homebuyers face an average monthly payment on a typical new $350,000 mortgage (the median existing home sale price is just under $400K) that has gone up from $1523 to $2128, a 40% increase in 6 months!

Another way of putting this: at a 6.13% mortgage (and rates will still keep rising for a long time with the Fed now set to hike between 125bps and 150bps in the next two months), the average home price needs to fall 30% to reach pre-covid affordability.

-JPMorgan Chase and Goldman Sachs are withdrawing from handling trades of Russian debt, Bloomberg reported on Tuesday. The pullout follows Washington’s announcement last week that it was banning US investors from holding such assets.

-The US and European real estate markets are experiencing a downwards shift in prices as buyers fall away, according to the global chief investment officer of Hines, one of the largest closely held real estate investors in the world. Prices have fallen by about 5% to 10% compared to a year earlier in some areas, according to David L. Steinbach, with Europe following a trajectory set in the US. “I think we’re in for a rough few months,” he said. “This year is going to be choppy water.”

-Mikhail Kasyanov, Russia’s prime minister from 2000 to 2004, has said he expects the war in Ukraine could last up to two years.

-The president of Mexico has condemned NATO's approach to the war in Ukraine - labelling it "immoral." U.S.-NATO policy is tantamount to saying, “I’ll supply the weapons, and you supply the dead," said López Obrador. "It is immoral.”

-Ukraine Has Begun Moving Sensitive Data Outside Its Borders. Some government databases are already on cloud servers in Poland, and officials are negotiating similar arrangements with France, Estonia and several other nations

-NATO Secretary General Jens Stoltenberg said on Sunday that the US-led bloc aims to strengthen Ukraine’s position at the negotiating table, but added that any peace deal would involve compromises, including on territory.

-Russia has recently replaced Saudi Arabia as the second largest oil supplier for India, a country with a population of over 1.3 billion people.  Iraq continues to act as their number one supplier.

-Chinese police have started training their Solomon Islands counterparts, the island nation announced on Sunday. The first round of exercises took place at the Royal Solomon Islands Police Force (RSIPF) headquarters in Rove, a western suburb of the capital city of Honiara, between June 7 and 11.  

-The Biden administration is working to expand monkeypox testing capabilities beyond a narrow group of public health labs, as infectious disease experts are now suggesting that testing for the virus needs to become part of routine care. As the Epoch Times notes, Centers for Disease Control and Prevention (CDC) Director Dr. Rochelle Walensky said during a conference call on Friday that her agency is working with the Food and Drug Administration (FDA) and Centers for Medicare and Medicaid Services (CMS) to expand testing capacity to include commercial laboratories. At present, monkeypox testing is done through a network of 69 public health laboratories, which send results to the CDC for confirmation. So far, there have been 50 confirmed cases in the US across 16 states, while roughly 300 monkeypox tests have been administered.

-The Kremlin is “sure” that pro-Russian separatist leaders in the Donbas would be willing to listen to an appeal from the UK over the fate of two Britons sentenced to death for fighting for Ukraine.

-Zelenskiy accused the German chancellor, Olaf Scholz, of being too concerned about the repercussions his support for Ukraine would have for Berlin’s ties with Moscow.

-The mayor of Mariupol, Vadym Boychenko, has accused “traitors” of passing on vital information to Russian forces during the bombardment of the southern port city at the beginning of the invasion.

-Ukraine has lost a quarter of its arable land since the Russian invasion, notably in the south and east, deputy agriculture minister Taras Vysotskiy said.

-Germany could lend up to $10.4 billion (10 billion euro) to bail out a former unit of Russia’s Gazprom, which the German government expropriated earlier this year, sources with knowledge of the matter told Bloomberg on Monday.

-On Monday the Ukrainian government announced implementation of a measure halting all its exports of gas, coal and fuel oil, citing disruptions and a domestic supply emergency due to the Russian invasion. These commodities are now prohibited for export during a time of war, the published government resolution states, which is the result of "the armed aggression of the Russian Federation against Ukraine and the imposition of martial law in Ukraine."

-Russia is again attempting to assert that the main goal of its “special military operation” in Ukraine is merely to “protect” the Donetsk and Luhansk people’s republics. According to Reuters, Kremlin spokesperson Dmitry Peskov repeated the claim Monday to Russia’s RIA state news agency. “In general, the protection of the republics is the main goal of the special military operation,” Peskov said. Donetsk and Luhansk are two breakaway Russian-backed entities in the Donbas region of eastern Ukraine.

-The Biden administration has been quietly urging agricultural and shipping companies to buy and carry more Russian fertilizer, according to Bloomberg, citing people familiar with the efforts. The move comes as fears over sanctions have led to a sharp drop in supplies, contributing to the ongoing 'spiraling global food costs.' With Moscow being a key supplier of fertilizer, the US and EU have included exemptions on sanctions against doing business with Russia - however many shippers, banks and insurers have been cautiously staying away out of fear that they might accidentally run afoul of the rules in an expensive lesson. Now, US officials are trying to encourage activity in the space.

-Ukraine has called on the west to supply 300 rocket launchers, 500 tanks and 1,000 howitzers before a key meeting on Wednesday amid concern in some quarters it is pushing its demands for Nato-standard weapons to the limit. The maximalist request was made publicly by Mykhailo Podolyak, a key presidential adviser, on Twitter on Monday where he argued that Ukraine needed “heavy weapons parity” to defeat Russia and end the war. Mykhailo Podolyak, an adviser to the head of the Office of the President of Ukraine, has said on Twitter that to end the war his country need “heavy weapons parity”. Being straightforward – to end the war we need heavy weapons parity:

    1000 howitzers caliber 155 mm;
    300 MLRS;
    500 tanks;
    2000 armored vehicles;
    1000 drones.

-Russia’s defence ministry has said its missiles destroyed a large quantity of weapons and military equipment in Ukraine’s eastern Donbas region, including some that were sent from the US and Europe. It said high-precision air-based missiles had struck near the Udachne railway station, hitting equipment that had been delivered to Ukrainian forces.

-Russia earned €93bn in revenue from fossil fuel exports in the first 100 days of the war, according to research by Finland’s Centre for Research on Energy and Clean Air (Crea). With 61% of these exports, worth €56bn (£48bn), going to the member states of the European Union, the bloc of countries remains Russia’s largest export market. After China, Germany remains its largest customer, with exports between 14 February and 3 June amounting to €12.1bn. Other large importers of Russian fossil fuels are Italy (€7.8bn), the Netherlands (€7.8bn), Turkey (€6.7bn) and Poland (€4.4bn). While the volume of exports fell by around 15% in May, the increase in fossil demand has also created a windfall for the country: Russia’s average export prices were on average 60% higher than last year.

-Daniel Ortega, the president of Nicaragua, that he will be allowing Russian troops, ships and planes into the region for humanitarian operations will certainly upset the current mainstream narrative that Russia has been "isolated" from the rest of the world by Western sanctions. Though the Kremlin has dismissed concerns over military deployment in Central America, saying it is 'routine', it is not supposed to be routine post Ukraine invasion.  Nicaraguan state television suggested that: 'If U.S. missile systems can almost reach Moscow from Ukrainian territory, it is time for Russia to deploy something powerful closer to U.S. cities...'

-A new report by Bloomberg on Sunday has detailed a series of instances that Chinese officials have privately conveyed to their American counterparts that the Taiwan Strait does not constitute international waters, upping tensions given the Biden administration has been sailing navy warships through the contested waters on a monthly basis. "The statement disputing the US view of international law has been delivered to the American government by Chinese officials on multiple occasions and at multiple levels, the person said," Bloomberg writes. "The US and key allies say much of the strait constitutes international waters, and they routinely send naval vessels through the waterway as part of freedom of navigation exercises." The Biden administration is said to be "alarmed" by the private warnings, given that "It’s not clear whether the recent assertions indicate that China will take more steps to confront naval vessels that enter transit the Taiwan Strait," according to the report. This also suggests China could take a more assertive stance in the South China Sea, where US warships have also been conducting freedom of navigation exercises. On Friday during the first ever face-to-face meeting between US Secretary of Defense Lloyd Austin and China's defense minister Wei Fenghe, the latter warned his American counterpart that Beijing will "not hesitate to start a war" if Taiwan declares independence. Wei had warned Austin that "if anyone dares to split Taiwan from China, the Chinese army will definitely not hesitate to start a war no matter the cost", defence ministry spokesman Wu Qian quoted the minister as saying during the meeting.

-The German auto industry is protesting a decision by EU parliament to ban the sale of cars that run on petrol and diesel by 2035, describing it as detrimental to the market and consumers. Earlier this week, in Strasbourg, the European Parliament voted to support a ban on the sale of new combustion engine cars beginning in 2035 in line with the bloc’s goal of achieving climate neutrality in 2050. The EU Assembly vote comes as the bloc desperately attempts to cut its independence on oil and gas products from Russia.  In a statement, the German auto industry said the EU Parliament’s decision was “against citizens, against the market, against innovation and against modern technologies”m Euractiv reported. According to Hildegard Müller, president of VDA, the German auto industry association, Europe does not have sufficient charging infrastructure to support such a ban, and the EU Parliament is acting prematurely.