Russia's (Short) Mutiny, BRICS Needs Dollars, & Germany Nears Reverse QE
The situation in Russia poses little near-term risk to US financial markets, "dedollarization" is unserious, and Germany buys back... its own debt?
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What happened in Russia over the weekend?
Well, if you were away from your phone, computer, or television set, you’d rightly think that nothing happened—however, a division of Russian troops mutinied against the army, captured a military logistics hub of Rostov-on-don without a fight as citizens cheered them on, and then promptly reached a deal with the Kremlin and stopped their advance, all in the span of 24 hours.
The mutiny came about when a disenchanted head of a group of mercenaries fighting alongside the Russian army became fed up following a multi-month-long battle to capture a city in which some 20,000 of his troops died. He decided, with the support of the Russian people who similarly wanted to end the war, to turn around and march into Moscow seeking a purportedly peaceful end to the conflict that many still find themselves puzzled to find a good reason for.
We are not geopolitical experts; all we can do is unpack the impact that this oddball event and any further escalations will have on global financial markets.
There is little event risk posed to the United States as a result of all of this thanks to our virtually nonexistent trade relationship with Russia and their microscopic US Treasury holdings. Russia has a total of $27 million (with an M) in long-term US Treasuries and just $8 million in short-term USTs. For context, there are medium-sized US-based companies that hold more US Treasuries for capital preservation purposes than the entire Russian central bank.
The war in Ukraine just passed its 16th month, and you seriously wouldn’t know there is a major active European conflict if you only looked at commodity and equity prices. While an escalation to a civil war in Russia has been averted for now, if one were to occur, it would have a substantial impact on China, which would likely engage in fiscal spending to fund the Russian effort. If that bridge is crossed, the US and its financial markets have more to worry about. For now, this is just something to keep an eye on.
The Foremost Dedollarization Effort Needs… Dollars
China's BRICS development bank is now facing a US dollar funding shortage. That’s right, the 5-nation coalition formed to displace the dollar is dying from, drumroll please, a lack of dollars:
