The pipeline has been shut for three days for maintenance and will not reopen unless sanctions are lifted.

"Pumping problems arose because of sanctions imposed against our country and against a number of companies by Western states, including Germany and the UK,” said Kremlin spokesman Dmitry Peskov.

Gas prices surged on Monday 5^th September over pressing concerns around energy supplies. The Dutch month-ahead wholesale gas price, which is considered a benchmark for Europe, rose 30% in early trading on Monday, whilst prices in the UK were up as much as 35%. A German government spokesperson commented that the latest gas price surge was part of Putin's plan.

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations. They tend to have robust and enforceable legal systems, solid financial infrastructure and a culture enabling transactions and risk-taking. That’s the key to understanding the fundamental strength of the City of London – centuries of stability.

All around the world, we are now seeing a rise in instabilities – triggered by supply chain breakdowns, the supply shocks in Energy and Food, and now wage demands. Nations are struggling with inflation, rising interest rates, higher debt service costs on borrowing, rising bond yields, currency weakness, and how to address multiple vectors of financial instability as they try to hold their financial sovereignty together.

It’s occurring at a time when we seem to have reached the lowest common denominator in the political cycle. That’s a critical problem – voters need leadership in crisis, and they can easily be fooled by populists.

Confidence in a nation’s political direction and leadership is one of the key components of the Virtuous Sovereign Trinity, my simple way of explaining how Confidence in a country, the value of its Currency, and the Stability of its bond market are closely linked. When they are strong – they can be very strong. Strong economies rise to the top.

But, if any one of the Trinity’s legs were to fracture, then the whole edifice could come tumbling down. Which is why we should be concerned sterling is down over 10% this year. It strongly suggests global investors have issues with the UK.

Key to my approach to markets is that they require political stability to thrive – hence the most remunerative markets tend to be found within the most stable nations.

The UK is a good example of what might go wrong. If confidence wobbles in the government’s ability to handle the multiple economic crises now upon us, particularly the rising tide of industrial unrest as workers demand higher salaries to cope with inflation or servicing the nation’s debt, then the UK’s currency and bond markets could come under massive pressure. Investors will demand a higher interest rate to account for the increasing risk inherent from investing in the UK, while the currency could tumble as investors sell gilts to buy less vulnerable more stable nations.

At least the UK is financially sovereign. We control our own currency. Sterling may weaken, but we can always print more to repay debt… Except that would probably cause a global run on sterling as confidence in the UK would further tumble. If the currency leg were to fracture, interest rates would have to rise, wobbling confidence further.

The Virtuous Sovereign Trinity sounds stable, but experience shows it can quickly turn chaotic if issues are not swiftly addressed.

Clearly, the UK has some current confidence “issues” regarding the incumbent political leadership. The growing perception that Boris is a “lame duck” magnifies internationally held concerns about how his government has failed to seize the opportunities (such as they were) from Brexit, doubts about energy and food security, and the apparent dither in policies are all perceived as reasons for sterling weakness and are another reason bond yields are rising as global investors exit.

While the UK’s debt quantum should be manageable – Italy is somewhat different. As part of the Euro, Italy is no longer financially sovereign. It has rules on Debt/GDP to observe (and ignore). But effectively Italy borrows in a collective currency it has no real control over. It has to plead with the ECB for the right to borrow money and will rely on the ECB to announce special measures to make sure its debt costs don’t turn astronomical. Without the ECB, Italy would be heading straight for a debt crisis.

That’s why ECB head Christine Lagarde is desperately trying to guide the ECB towards the establishment of anti-fragmentation policies to stop Italian debt instability leading to a renewed European sovereign debt crisis. Fragmentation means Italian bond spreads widening to Germany – the European sovereign benchmark. It’s a political issue because Lagarde is no central banker, but a politician sent in to lead the ECB to the inevitable compromise that rich German workers will pay Italians’ pensions.

In the USA there is an even larger political impasse developing. The US Supreme Court’s decision – by 4 old men and one catholic woman appointed by Trump – to deny women the right to control their bodies by undoing abortion rights highlights the increasingly polarized nature of US politics. Republicans, and their fellow travellers on the religious right, are delighted. Democrats are appalled.

US politics simply doesn’t work. All efforts by Biden to pass critical infrastructure spending have been stymied. There is zero agreement between the parties – each has destroying the other at the top of its to-do list, rather than rebuilding the economy. The result is increasing doubts on the dollar. It’s a battle the Republicans are winning by dint of managing to stuff the Supreme Court with its appointees. It’s no basis for democracy or market stability.

At the moment the dollar is the go-to currency, and treasuries are the ultimate safe haven. It could change. The world’s attitude to the US is evolving. The West may be united on Ukraine, but global support is noticeably lacking. 35 nations representing 55% of the global population abstained from voting against Russia at the UN. The Middle East and India see Ukraine as a European problem and a crisis as much of America’s making. As the West lectures the Taliban on schooling girls, the Republican party has moved the US closer to a dystopian version of The Handmaid’s Tale of gender subjugation.

As the World increasingly rejects America, then America will reject the rest of the World. Time is limited. The Republican Administration, run by Trump, or kowtowing to him, will likely pull the US from NATO and isolate itself. That’s going to become increasingly clear over the next few years. The dollar, the primacy of Treasuries… will leave a massive hole at the centre of the global trading economy.

It will be particularly tough for Europe. As we seek alternative energy sources, what happens when Trump 2.1 proves as pernicious as Putin and shuts off supplies?

The supreme court decision was clearly timed to come at the Nadir of this US political cycle – a weak president likely to lose the mid-terms in November – when the Roe vs Wade news will be off the front pages. It means the damage to the Republicans in the Mid-Term Elections could be limited – they will still make the US essentially ungovernable for the next 3 years.

If the US was a corporate, it would be a massive fail on corporate governance. But it’s not. It’s the current dominant global economy and currency. Politics and markets can’t be ignored.

In 2008 Central Banks bailed out the financial universe following the collapse of Lehman. They provided unlimited liquidity in the form of Quantitative Easing and Negative Interest Rate Policy to dodge a global recession and enable the longest bull market on record. In 2012 the ECB saved the Euro and Europe by doing “whatever” it took. In 2020 central banks stepped in to stabilise wobbling COVID struck economies with rate cuts and yet more liquidity.

Today? Central Banks are being assaulted on every front. Politicians are questioning their independence – blaming them for the effects of the sudden Ukraine War Energy and Food inflation spike. Markets are watching the bull market unravel and blaming Central Banks. Read any research on the market and it will cite “Central Bank policy mistakes” as the most likely trigger for recession, stagflation, and market collapse.

Financial professionals under the age of 40 have never known normal markets. They’ve learnt their trades in markets where Central Banks are expected to step in a stabilise markets, to prop up too-big-to-fail financial institutions, and keep interest rates artificially low, thus juicing markets ever higher. I reckon over half the market workforce – fund managers, bankers, traders and regulators – will never have encountered market conditions like those we’re about to experience as it all goes horribly and predictably wrong.

Thankfully, there are few old dogs like me still wagging our tails in markets. We’ve seen it all before. Proper market crashes, interest rates in double digits, mortgage rates that will make a millennial’s heart tremble, and inflation the likes of which we are now seeing again. But, even we don’t know what happens next. This time… it is different.

We can’t blame Central Banks for the war in Ukraine – that’s a classic exogenous shock. It’s a crisis the politicians really should have figured out, foreseen and prepared for. One of the prime duties of the state is security, and it’s the insecurity of energy and soon, food supplies, that have triggered the inflation shock.

The reality is exogenous shocks outwith central bank control have precipitated inflation in the real economy. But, let’s not kid ourselves: two factors successfully hid inflation for the last 12 years:

1. Most of the liquidity injected by central banks since 2008 flowed into financial assets (stocks and bonds), where price inflation was mistaken for investment genius. (It’s also generated massive wealth inequality between those that own stocks and those that don’t.)
2. In the wake of COVID, supply chains have unravelled. The Geopolitical Tensions now apparent between the West and China mean the end of the age of globalisation – and it was cheap Chinese exports that created the deflation that kept inflation artificially low during the twenty-teens.

In retrospect, the whole bull market of the Twenty-Teens looks increasingly false – a Potemkin village boom founded on overly cheap money, government borrowing and undelivered political promises. Abundant liquidity enabled the age of the fantastical – growth stocks worth trillions but profits measured in pennies, crypto-cons, SPACs and NFTs. Booming markets supported by accommodative central banks have spawned a host of consequences – few of which will prove ultimately positive.

Central Banks knew the risks from the get-go. They have been trying to figure out how to undo (or taper) the consequences of their monetary stimulus while maintaining the market stability critical for Western Economies. That has all suddenly unravelled at speed because of the inflation shock.

It’s the decisions taken over the past 14 years by Central Banks have led us to this critical moment in economic history. Since 2008 central banks have been using monetary experimentation to stabilise and control the economy and markets. And, as always happens, suddenly it’s turned chaotic. Its only now becoming apparent just how much these policies created massive market distortions, overturned the traditional investment narrative and caused the most massive misallocations of capital in global financial history at both the Macro and Micro levels.

Oops. 

Take a look at markets over the past 14 years and figure it out:

• The most speculative asset bubbles in history?
• Tremendous financial asset inflation on the back of ultra-low interest rates?
• Whole new financial markets like cryptocurrencies and NFTs emerging on the back of the broken monetary model – which will likely prove absolutely hollow scams.
• And the power of FOMO (Fear of Missing Out) dragging in millions of inexperienced retail investors to meme stocks – where they are now likely to be skinned and gutted?

Oops again…

How did it go so wrong? The Global Financial Crisis of 2008 threatened a global depression. The problems were multiple – a dearth of bank lending (caused as much by draconian new capital regulations as risk aversion), economic slowdown, and incipient recession… Central banks were forced to act, and flooded the economy with liquidity in the hope it would stimulate growth.

It didn’t. It created market bubbles. Investors quickly realised the easiest way to generate returns was to follow liquidity. Corporate managements figured out the best way to improve their bonuses was to inflate their companies' stock price – not through carefully considered investment in new plants and products to improve productivity and profits, but by borrowing money in the bond markets to buy back their own stock. And that’s worked well…Not! All that money has now been lost by crashing markets, and they still have to repay the debt.

Again… Oops…

In Europe the 2012 sovereign debt crisis followed the banking crisis, triggering massive fears of imminent country defaults and the Greek debt crisis. The ECB did what it took and used monetary policy to advance billions to banks through Targets Long-Term Repos and other emergency measures… Very quickly banks and the market realised central bank liquidity was an arbitrage opportunity – if the Banks were buying bonds, buy more bonds to sell to them!

As a result, nations like Italy saw the cost of their debt plunge, allowing some of the most heavily indebted nations to continue borrowing… Yet there is no guarantee, and never will be, that German taxpayers will ever agree to pay Italian pensions. As the German terror of hyperinflation is raised, and Europe suffers stagflation, it's highly likely we will see new tensions across European debt arise. That’s why it’s a politician rather than a central banker running the ECB!

Guess what… Oops…

How did the Central Banks intend to undo the consequences of the distortion they created? Taper? Hah. We are passed that stage now. I guess we will never know how they planned to untie the knot they created...

The good news is chaos spells opportunity for smart investors!

The IEA reported that the Kremlin earned approximately $20 billion each month in 2022 from combined sales of crude oil and other products totalling around 8 million barrels per day. In 2022, total oil export revenues were up 50% for Russia. 

Despite the conflict in Ukraine, Russian shipments have continued to flow to the European Union and Asia, with both China and India bagging heavily discounted cargoes. 

Nonetheless, the EU bloc remained the largest market for Russian exports in April. According to the IEA, it received 43% of Russia’s shipments. However, the EU is pushing towards a full ban on Russian crudes, with sanctions against Russian state-linked companies, such as oil giant Rosneft PJSC, set to begin on May 15.

With ongoing chaos caused to industry in the east of the country and a blockade of Black Sea ports in the south, Ukraine’s GDP is projected to drop by approximately 45% in 2022. 

The World Bank warned that Russia will likely also fall into recession, as will many other countries surrounding Ukraine, with some likely to soon require external support from international agencies to prevent them from defaulting on existing debts. 

On Sunday, the World Bank said, “The war is having a devastating impact on human life and causing economic destruction in both countries, and will lead to significant economic losses in the Europe and central Asia region and the rest of the world.”

“It comes at a particularly vulnerable time for ECA as its economic recovery was expected to be held back by scarring from the pandemic and lingering structural weaknesses. The economic impact of the conflict has reverberated through multiple channels, including commodity and financial markets, trade and migration links, and the damaging impact on confidence.”

As I write, all kinds of noise about possible "outcomes" are playing out across the airways. A Turkish brokered ceasefire or maybe an "exit-ramp" for Putin, including a "No-Nato Membership for Ukraine" promise and Crimea in return for an advance back to the previous borders. The brutal reality is Ukraine is being progressively flattened. Their troops are taking heavy casualties. Raw recruits will be thrown into the meatgrinder to frustrate the Russian advance, but how much time they gain is debatable. It is desperately sad and tragic, but what choice do they have?

The reality is predicting outcomes in Ukraine remains guesswork.

Yet, for all the uncertainty, the death, wanton destruction, and the rising refugee crisis, the first thing we've learnt following the Russian invasion is markets are apparently impervious to negativity and risk. That won't last forever. Reality has a nasty habit of catching up and biting hard.

Take a close look at the numbers underlying stronger stocks – volumes are weak and unconvincing. The recent bond slide and flattening curve speak of a nasty and unpredictable recession to come.

The uncertainty hitting markets is greater than I've ever seen. Whether it's the end of the QE market picnic, Central banks hiking rates, the rising risk of monetary and fiscal policy mistakes, the pandemic, the approaching cost-of-living shock about to crush consumers, inflation, recession, or possible stagflation, broken and rebroken supply chains, rising geopolitical instability, and the largest most bloody European conflict since 1945 with a not intangible possibility of nuclear war.

But, where's the panic? The markets seem to be thriving.

The market is not a rational beast. Prices represent what market participants believe rather than the economic actuality. Mr Market is simply an enormous voting machine weighing the hopes, beliefs and opinions of every single market participant.

The market does not measure actual reality or facts. At the moment – it is discounting any pain likely to come. The fact prices remain "euphoric" tells us participants hope for positive outcomes – despite the multiple tensions facing us – and are therefore taking buy-the-dip-risks rather than battening down for a possible storm.

Mr Market is simply an enormous voting machine weighing the hopes, beliefs and opinions of every single market participant.

Events trigger consequences, and how these will play out is frankly a guessing game. Ripples from Ukraine threaten to swamp the whole globalised marketplace.

It's what's happening below the surface, out of sight, that matters. It may take many months for the consequences of the war in Ukraine to really impose themselves on market sentiment. Russia's move on Ukraine shocked the West. It will impose massive costs. Long-term sanctions will cripple Russia – perhaps fatally because of its hopeless demographics, creating yet more instability.

The two immediate threats in plain sight are food and energy security. We are in for a long period of price instability in both.

Ukraine accounts for a significant portion of agricultural production. It is literally the 'Breadbasket of Europe' and regional emerging markets in terms of wheat, soya, and sunflower oil. Food prices will rise. Equally importantly, potential food shortages in Africa could trigger a new refugee crisis into Europe, which may be aligned today on Ukraine but could struggle with a new destabilising wave of migrants.

Europe will wean itself off Russian oil and gas, but that will not be an overnight transition which means long-term price instability. It's already clear the Gulf States are happy to play off Russia versus the West. They have been waiting since the oil shock of 1973 for an opportunity to play neutral and keep prices high. They are also very aware Europe can't rely on the USA for its energy security. In the next presidential election, it's looking increasingly likely a pro-Trump populist Republican party will trend isolationist and at the very least pivot away from Europe.

Europe has limited time to effectively rearm, secure its energy and organise its own defences. It can be done and the signals are encouraging increased European cooperation and an invigorated EU. The risk is how will Europe fare if a global recession comes on the back of broken Chinese rooted supply chains, an inflation spike, or a new refugee crisis?

There is clearly more at stake than just markets. The next few months could see threat levels decline. On the balance of probabilities, is that likely? Not really. Trying to imagine Putin apologising just isn't realistic.

At the core, the tensions boil down to how effectively the Liberal-democratic West can counter the threats of resurgent autocratic nationalism from China, Russia and the risks others play the opportunity to their best advantage. Crisis for one player is an opportunity for another. Hence the shift back into defence and energy stocks. If the big one is coming, let's not deny it, but prepare for it.

Russia, frankly, isn't even a player in the Game of Geopolitics anymore. They've broken themselves on Ukraine.

The force that balanced the tension twixt the autocratic East and the Liberal Democratic West since the last cold war was always commerce and the opportunity for poorer nations to raise themselves on the back of trade. It happened for China. The big threat from Ukraine is that it represents the end of globalisation. It seems to be happening as supply chains remain under pressure.

The big unknown is China. It clearly wants to internalise and continue to grow its economy, secure its borders, and expand its economic hegemony. It can do so in partnership with the West. Or it can choose conflict – which is what the Generals fear. That China will take the opportunity to engage in a land-grab on Taiwan and risk economic estrangement. But, based on what they've seen in Ukraine and the effect of Russian sanctions, we can hope they favour trade.

Russia, frankly, isn't even a player in the Game of Geopolitics anymore. They've broken themselves on Ukraine. The sanctions will leave its energy industry in tatters as expertise and spare parts dry up. It may remain a major supplier of global instability through cheap weapons, immoral mercenaries, and unpredictability, yet Putin's throw of the dice in Ukraine increasingly looks like a losing gamble. How he plays his last few cards to sustain his kleptocracy is the known unknown.

The immediate threat is Russian unpredictability. The long-term hope is China sees a better future as part of a post-Ukraine globalised economy, which is all back to guessing. What happens next?

The Saudi-led military coalition fighting in Yemen said that the attacks early on Sunday did not result in any casualties, though did cause damage to civilian vehicles and homes. Later on Sunday, an aerial attack struck an oil facility in the Saudi port city of Jeddah, resulting in a fire, though again without any casualties. 

In addition to the attack, reports that the European Union is weighing an embargo on oil imports from Russia in line with its western allies has also pushed prices up. While EU nations had previously opposed the ban, Baltic countries have been persistent in advocating it as Russia’s unprovoked attack on Ukraine continues. 

On Monday, Brent crude rose 4.5% to $112.75 per barrel, while US light crude was up 4.7% to $109.66 in electronic trading on the New York Mercantile Exchange.  

The retailer has halted product shipments to Russia, while its local partner in Russia has suspended all operations at its 120 retail establishments.  

The retailer’s announcement followed similar announcements by some of the world’s largest consumer brands, such as Pepsi, Coca-Cola, and McDonald’s. While large firms are keen to demonstrate their support for the people of Ukraine, the move by Mothercare could substantially impact its trade. Russia is responsible for around one fifth and one-quarter of its worldwide retail sales, and operations in the country bring in a profit of around £500,000 per month. Following Mothercare’s announcement, shares dropped by 25%. 

On March 8, the United Nations confirmed the deaths of 406 Ukrainian civilians, though the real figure is suspected to be significantly higher. Millions of people have now fled the country, seeking refuge across Europe. According to the BBC, Poland has accepted 1,294,903 refugees, while Hungary has taken 203,222, and Slovakia has 153,303.

“We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel — despite being made with security of supplies at the forefront of our thinking — was not the right one and we are sorry,” said Shell CEO Ben van Beurden. 

“We will work with aid partners and humanitarian agencies over the coming days and weeks to determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine.”

Shell said it will now immediately cease all spot purchases of Russian crude oil and that it will not renew contract terms. The oil giant will gradually withdraw all hydrocarbons, including crude, petroleum products, gas, and liquified natural gas. 

Shell has also said it will shut its service stations in Russia, as well as its aviation fuels and lubricants operations. At present, Russian oil constitutes 8% of Shell’s working supplies.

In the 12 days since Russia began its unprovoked invasion of Ukraine, more than 2 million Ukrainians have fled their country. This is according to a tracker from the UN refugee agency. 

When asked whether there would be a European ban on oil imports from Russia, Johnson replied, "There are different dependencies in different countries, and we have to be mindful of that, and you can't simply close down the use of oil and gas overnight even from Russia.”

"We can go fast in the UK...what we need to do is to make sure we are all moving the same direction... and that we accelerate that move and I think that's what you are going to see."

The UK prime minister also said that the government must ensure a substitute supply, though warned that impacts to the UK population can be expected. 

Johnson’s announcement follows on from previous remarks from Europe minister James Cleverly who said that the UK will consider banning Russian oil imports as the US moves to do so.

In a letter to the Ukrainian government, PayPal CEO Dan Shulman wrote, "Under the current circumstances, we are suspending PayPal services in Russia”, adding that the company "stands with the international community in condemning Russia's violent military aggression in Ukraine."

The letter was shared on Twitter by Ukraine’s minister of digital transformation Mykhailo Fedorov who thanked PayPal for its move: “So now it’s official: PayPal shuts down its services in Russia citing Ukraine aggression,” Fedorov tweeted Saturday. “Thank you @PayPal for your supporting!”

While PayPal discounted domestic services in Russia in 2020, this latest move relates to its remaining business in the country, such as send and receive functions and the ability to make international transfers via the payment processor’s Xoom remittances platform.  

PayPal has said that Russian nationals were prevented from opening new accounts earlier this week. 

Ukraine later announced that the fire, which broke out in a training building at the Zaporizhzhia compound, had been extinguished. However, speaking to Reuters, an official said that his organisation no longer had communication with the plant's manager after Russian forces took control. 

According to Russia’s defence ministry, the plant is working normally. It blamed the fire on what it is calling a “monstrous attack” by Ukrainian saboteurs. 

According to MarketWatch, Dow Jones Industrial Average futures dropped 273 points or 0.8% to 33,462. Meanwhile, S&P 500 futures fell 36 points or 0.8% to 4,323. Nasdaq-100 futures dropped 103 points or 0.7% to 13,926. 

While the situation at the nuclear power plant is seemingly averted, Russia’s control over the plant that provides more than one-fifth of Ukraine’s electricity is a huge development after eight days of brutal conflict.