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Russia’s Border Tensions Translate Into Market Pain

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Russian markets have come under unexpected pressure, with investors increasingly concerned about a possible invasion of Ukraine and the sudden unleashing of unrest in neighboring Kazakhstan. 

The ruble weakened to a more-than eight-month low against the dollar this week, with $1 buying 77 rubles, before recovering somewhat Friday. Both local currency and dollar-denominated sovereign debt sold off. The extra yield compared with Treasurys on a Russian government U.S. dollar bond due in 2023 has doubled since November, from around half a percentage point to a full percentage point. The MOEX, Russia’s benchmark stock index, lost 8% last quarter and has retreated further this week.

Those moves go against the country’s otherwise strong economic standing, high oil prices and a central bank that has raised rates multiple times to support the currency. Geopolitics, not economics, are driving Russian markets, investors said. 

“Russia looks extraordinarily cheap,” said

Paul McNamara,

an emerging markets fund manager at GAM. “Ukraine is the issue.” 

Russian troops have amassed on the border with Ukraine in recent months, spurring international concerns of another military invasion. The U.S. and the European Union already have sanctions in place against Russia, which would likely be expanded in response to any military action, analysts said. Among the possibilities advocated in Washington: curtailing Russia’s access to U.S. dollar banking transactions that serve as the lifeblood for global commerce, including Russia’s oil exports.

Mass protests in Kazakhstan this week over higher fuel prices are adding to investors’ concerns. Protesters have clashed with security forces and tried to storm government buildings, and President

Kassym-Jomart Tokayev

has ordered the police and army to shoot without warning.

A Russia-led intergovernmental military alliance has said it will send troops to Kazakhstan, raising alarm bells for investors who are worried that Russia may use the unrest as an excuse to increase its presence and influence in another neighboring country.  

“Markets are always on the lookout for any more Russian geopolitical involvement in the region, it is something investors exposed to Russia always have in the back of their minds,” said Simon Quijano-Evans, chief economist at Gemcorp. “There may be some spillover there and additional pressure on the ruble.”

Protests first triggered by rising fuel prices in Kazakhstan have turned violent, prompting a Russian-led military coalition to send troops to the oil-rich country. Video shows government buildings and streets in several cities being stormed by demonstrators. Photo: Mariya Gordeyeva/Reuters

Russia has long been a tricky market for investors. A debt crisis in the late 1990s burned a generation of speculators who dove in at the end of communism. The collapse of oil prices in 2014 and President

Vladimir Putin’s

invasion of Crimea hammered the currency. Russian-sponsored election meddling in the West have led to further rounds of economic sanctions. 

But intrepid investors have been rewarded with high interest rates and at times a relatively stable currency under its long-serving central bank chief,

Elvira Nabiullina.

The latest events come at a time when the Russian economy is at its strongest in years. A gusher of oil and gas revenues helped the country’s current account surplus increase by 3.5 times in 2021 through November to $111.4 billion, compared with the same period the previous year. Its foreign-exchange reserves rose by $40.8 billion last year. 

Brent, the global benchmark for crude prices, is hovering at around $80 a barrel, well above Russia’s break-even price of about $40 a barrel. Natural-gas prices in Europe have surged, with the benchmark soaring over 235% in 2021. The rally extended into the new year, increasing by more than a third in January due to cold winter weather.  

Russian companies haven’t gotten much of a boost. Shares of Gazprom, Russia’s biggest energy company, has edged up 1% since the start of the year.

Royal Dutch Shell

shares have climbed nearly 9%,

BP

has added about 10% and

Exxon Mobil

is up close to 13%. 

“There has been kind of a dislocation between energy markets and the Russian market,” said Joseph Mouawad, a fund manager at Carmignac. He sees this as a buying opportunity, particularly shares of companies supplying Europe with gas.

This divergence is also seen in the debt and currency markets. Russia’s key policy rate is at 8.5%, after seven rate increases in 2021 as the central bank sought to tame inflation. Investors welcomed the tightening, especially as it came ahead of plans by the Federal Reserve to cut its bond purchases and raise rates.

Typically, raising rates attracts capital flows for bonds and currency. For emerging markets such as Russia, that is an important way to offset capital outflows into the dollar when the Fed is tightening policy. 

But despite Russia’s rate increases, demand for ruble assets has weakened. “If we see escalation, inevitably Russian credit spreads would go wider,” said Timothy Ash, an emerging-market strategist at BlueBay Asset Management. “The risks are significant, these are the worst Russia-West relations in 30 years.”

A military buildup along the Ukrainian border is further straining ties between Russia and the U.S., after clashes over cybercrime, expulsions of diplomats and a migrant crisis in Belarus. WSJ explains what is deepening the rift between Washington and Moscow. Photo Composite/Video: Michelle Inez Simon

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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