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A raft of regulations targeting a number of sectors — from technology to real estate and education — have hammered Chinese stocks late last year and into 2022, and although many economists remain bullish on Chinese stocks’ potential, Beijing’s relationship with the Kremlin is now weighing on investor appetite for Chinese shares.

On Friday, April 1, Shanghai’s SSE Composite Index tumbled 5.8% year on year, and is down 9.6% from the start of the year. The SZSE Component Index, the benchmark index of the tech-heavy Shenzhen Stock Exchange, is also down 13.2% year over year on Friday, and 17.3% lower year-to-date.

The Hang Seng China Enterprises Index, which tracks Chinese companies listed in Hong Kong, likewise tanked 31.9% from last year as of Friday, and down 8% year-to-date.

2021 in retrospect

In 2021, Chinese companies were hit with regulatory changes as Beijing sought to weed out anti-competitive behavior, online gaming addiction, excessive childcare and education costs, and eliminate other risks in the private sector.

Beijing’s crackdown on the tech and financial technology sector led to the record fine of over 18 billion yuan (around $3 billion) on Alibaba (NYSE:BABA), the transition of Alibaba’s mobile payments arm Ant Group into a financial holding company and a raft of rules aimed at data security and anti-monopoly, among others.

The government also targeted the education sector last year, launching sweeping rules that upended for-profit tutoring companies. New rules aimed at protecting minors also took a toll on the operations and revenue of big gaming companies like Tencent Holdings (HKG:0700) and NetEase (NASDAQ:NTES).

Towards the end of last year, the vulnerability of China’s property sector came to light as China Evergrande's (HKG:3333) massive debt pileup of more than $300 billion highlighted the risks of the country’s highly-leveraged real estate sector that many fear would lead to a wider contagion affecting the country's financial industry and the global markets.

These factors led to a sell-off of Chinese stocks at home and in the US, with the Nasdaq Golden Dragon China Index (INDEXNASDAQ: HXC), which tracks 98 of China's biggest US-listed firms, posting its sharpest drop since the financial crisis of 2008 in March after reaching an all-time high in February 2021. As of writing, the HXC is trading lower than its 2008 peak after retracing approximately 70% of the gains it made since its 2008 bottom.

NASDAQ Golden Dragon China Index W1

Booting Chinese stocks from US exchanges

Geopolitical tensions and data security concerns prompted the US Securities and Exchange Commission to tighten its auditing rules on Chinese companies listed on US bourses. This threatens the US listing status of companies like KFC operator Yum China Holdings (NYSE:YUMC), Twitter-like Weibo (NASDAQ:WB), Baidu (NASDAQ:BIDU), and iQIYI (NASDAQ:IQ).

Even before these firms were added to the SEC’s “provisional list” of companies that are found to be violating the US Holding Foreign Companies Accountable Act, the US has already booted several Chinese companies — including China’s big three telecommunications companies — over the past year, citing data security concerns and other alleged violations.

Bullish on Chinese stocks

Despite uncertainties over the outlook for China’s regulatory environment in the coming years, some global banks and economists including Bernstein, Credit Suisse and Goldman Sachs remain bullish on Chinese stocks.

Credit Suisse upgraded its outlook on China, noting that values may be depressed, while Goldman Sachs underscored the investability of Chinese assets due to the liberalization and reform measures in the Chinese capital markets, which according to the bank backs its view that China equity is an asset class “that is too big, too growthy, and too vibrant to ignore.”

Geopolitical woes, COVID-19 risks remain

However, some economists are polarized on their outlook on Chinese stocks due to lingering geopolitical tensions and the resurgence of COVID-19 cases that recently prompted lockdowns in two of the country's most populous cities.

Reports highlighting Beijing’s relationship with Russia might be reducing investor appetite for Chinese stocks. Beijing has refused to back a global condemnation of the Kremlin’s military actions against Ukraine, refusing to describe the attacks as an invasion.

US-listed Chinese companies have lost over $1.1 trillion in market value in recent weeks due to these concerns and Asian Corporate Governance Association’s Jamie Allen told CNBC over a week ago that the delisting of US-listed Chinese firms could come in the next two to three years.

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Coinbase (NASDAQ:COIN), the cryptocurrency exchange platform that is facing a class action lawsuit over its alleged listing of unregulated securities, on Wednesday fell 43% from its peak since it went public on the Nasdaq stock exchange nearly a year ago.

The stock is down 21% from the reference price of $250 set by the Nasdaq when it debuted in April 2021. The IPO valued Coinbase at $49.8 billion and marked the first major cryptocurrency company to go public on a US stock exchange.

However, Coinbase’s stock price has since swung to as low as $160 earlier this month amid the volatile cryptocurrency market, uncertainties over regulations on digital currencies and a massive class action lawsuit over its alleged sale of securities not registered with the US Securities and Exchange Commission.

The lawsuit alleges that Coinbase, since October 2019, has been letting customers trade 79 cryptocurrencies without disclosing that they are in fact securities.

Coinbase in numbers

Coinbase, established in 2012, allows users to trade cryptocurrencies like Bitcoin and Ether in exchange for a transaction fee. Last year, the platform’s monthly transacting users quadrupled from 2020 to 11.4 million.

The company raked in $7.36 billion in revenue in 2021, up 545% from $1.14 billion in 2020, while net income soared elevenfold to $3.62 billion from $322 million.

Coinbase attributed its strong performance to the booming crypto market. The market capitalization of cryptocurrencies over 2021 surged threefold, closing at $2.3 trillion, but down from a peak of $3.1 trillion in November 2021. Bitcoin’s market cap by 2021-end hit almost $1.3 trillion.

Coinbase (NASDAQ:COIN) vs Bitcoin

Tied to Bitcoin price

As a cryptocurrency exchange, Coinbase’s stock performance is tied to the price of Bitcoin and other major digital currencies, which means that if crypto markets collapse, it would likely hammer Coinbase’s stock price.

Both Coinbase and Bitcoin reached their peaks in November 2021. Bitcoin traded near $70,000 at the time but has since fallen to around $45,000 in recent months as traditional investors appear to shun digital assets.

Regulatory woes

Although Coinbase as a listed exchange platform is regulated by US laws, cryptocurrencies still have a long way to go in terms of regulations.

In the US, the Biden administration recently issued an executive order directing the government to come up with a plan to regulate cryptos, but in Europe, the market is headed for tighter regulations as lawmakers are set to introduce new laws to curb suspicious transactions, among other reasons.

In a blog post on Monday, Coinbase’s Chief Legal Officer Paul Grewal said that if adopted, the EU’s planned crypto laws would "stifle innovation”.

The new Coinbase marketplace

Despite the crypto downturn this year and potentially tighter regulations, Coinbase remains bullish on digital assets, hinting at plans to launch its new marketplace for NFT or non-fungible tokens “soon”.

Coinbase NFT will allow users to buy, sell and check out NFTs through a peer-to-peer marketplace.

“What we liked right now and we’re observing the market is that NFT volume and price appear less correlated with other crypto assets,” Coinbase CFO Alesia Haas told analysts during the company's earnings call last month.

The company’s NFT plans could usher in a new revenue stream for Coinbase amid the volatility in cryptocurrencies.

Needham equity research analyst John Todaro expects Coinbase’s NFT ambitions would add an additional $1.26 billion in revenue for the company.

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Talks of a looming stagflation in the European Union have intensified over the past month as the region suffers from what many describe as the worst conflict in the continent in decades, threatening skyrocketing inflation, supply shortages, job losses and famine.

Worst economic shock since WWII

Even before the Ukraine invasion began, European countries had already suffered the worst economic shock since World War II in 2020 when the disruptions caused by the COVID-19 pandemic led to a 6.4% drop in the EU’s real GDP. That was worse than the GDP drop during the global financial crisis.

The EU region rebounded in 2021, posting 14.09 trillion euros in GDP, up 5.3% from pandemic-hit 2020.

However, just as the EU’s economic recovery was gathering pace, the region could now plunge into recession, or worse a stagflation — a period of high inflation, elevated unemployment, and slow economic growth rate — as the region is caught in between the Russia-Ukraine conflict.

EU GDP growth

Worsening diesel shortage sparks rationing concerns

As the Ukraine invasion drags on, the global oil trade remains in disarray as sanctions against Russia have prevented it from selling crude to some of its overseas customers. Although oil prices have fallen in recent days due to upbeat developments surrounding peace talks between the two warring countries, oil prices remain high as the absence of Russian crude continues to be felt in global markets.

This sparked concerns of rationing in many markets, particularly in Europe, the top buyer of Russian oil, as many European leaders have scoffed at Vladimir Putin’s demand to pay for natural gas and oil in rubles.

"Governments have a very clear understanding that there is a clear link between diesel and GDP, because almost everything that goes into and out of a factory goes using diesel,” John Cooper, director general of Fuels Europe, a unit of the European Petroleum Refiners Association, was quoted by Reuters as saying.

Germany, Poland, Turkey, Britain, France and Spain are the countries that are most dependent on Russian diesel, the news outlet added, citing data from energy consultancy FGE.

Worst global food crisis since WWII

In addition to the shortage of oil, the Ukraine war has also exacerbated the global food shortage at a time when many countries are already struggling with poverty and hunger during the COVID-19 pandemic.

David Beasley, executive director of the UN World Food Program, on Tuesday warned that the war in Ukraine has led to “a catastrophe on top of a catastrophe,” that "will have a global impact beyond anything we’ve seen since World War II.”

In February, global food prices jumped to an all-time high, according to the FAO Food Price Index. Beasley said high prices mean more people globally will fall into hunger.

Pandemic’s impact on EU labor markets

Employment levels in the EU have declined since the start of the pandemic, while the total hours worked also slumped reflecting supply and demand factors, according to a recent report by the International Monetary Fund.

As economies reopened prior to the war, labor markets have recovered from the pandemic-induced slump, with the EU unemployment rate shrinking to a historical low of 6.8% in December 2021, the IMF noted.

However, as inflation continues to soar, wages will likely follow the trend, prompting more rate hikes by central banks.

EU unemployment

Playing down stagflation concerns

Against the many signs that point to a possible stagflation in the EU in the near term, Christine Lagarde, chief of the European Central Bank, said in a Wednesday conference that no data suggests Europe will fall into stagflation.

Although inflation will “no doubt” increase this year, conditions remain “quite fluid,” Lagarde was quoted by the Associated Press as saying.

Time to broaden your investments: Trade euros, energy, and food commodities

The nickel market has been in disarray in recent weeks as prices soared to unprecedented levels before going on a freefall amid supply concerns and an unexpected short-squeeze by one of the world’s largest steelmakers.

Nickel is one of the most common metal elements in the world used to make stainless steel, batteries, coins, and other metal applications.

How the Russia-Ukraine conflict drove nickel prices higher

Russia is one of the world’s largest producers of nickel, supplying about 20% of class 1 nickel that is mainly used in the production of stainless steel and electric vehicle batteries. Data from market research firm Statista showed that Russia was the world’s leading exporter of nickel and nickel products in 2020, shipping about $3.02 billion worth of the commodity.

The conflict between Russia and Ukraine sparked fears of a nickel supply crunch as Russia has been hit with a number of economic sanctions and as importers of other Russian commodities like oil avoid being impacted by sanctions.

The short-squeeze that sent prices skyrocketing

In addition to the supply concerns induced by the ongoing Ukraine conflict, a short-squeeze involving Tsingshan Holding Group, touted as the largest nickel producer in the world, was also behind soaring nickel prices.

The Chinese company took a nickel short position of 200,000 tons of nickel in the London Metal Exchange (LME) and as the price of nickel surged in the early days of the Ukraine crisis, the company’s short position was left in disarray, setting it up for a paper loss of about $8 billion.

Tsingshan recently inked a deal with banks to avoid further margin calls, buying it time to cut its nickel position as markets stabilize.

LME forced to halt trading

The short-squeeze and supply concerns sent nickel prices skyrocketing by more than 50% to $100,000 per tonne on March 8, significantly up from about $25,000 per tonne a week earlier.

The surge prompted the LME to suspend nickel trading and impose price limits to maintain stability.

Since the trade resumption, prices have been on a freefall over low trading volumes and concerns about the status of Tsingshan’s short position. The benchmark three-month nickel on the LME fell 2.2% on Tuesday at 10:30 a.m. GMT to $32,000 per tonne.

Nickel D1

What the volatility in nickel prices could mean for EV makers

Higher nickel prices could drive up the costs of electric vehicles even higher as nickel is one of the key materials used to produce EV batteries. Morgan Stanley auto analyst Adam Jonas had recently warned that EVs in the US could be $1,000 more expensive as nickel prices soar.

This could hurt electric carmakers’ profit margins and impede the growth of the burgeoning EV market at a time when markets like China, Europe, and the US transition to new-energy vehicles.

The shortage in nickel and skyrocketing prices of the metal have forced some EV makers like Tesla (NASDAQ:TSLA) to look for other battery materials. In late February, Tesla CEO Elon Musk tweeted that the Silicon Valley-based company’s biggest concern for scaling lithium-ion cell production is nickel.

“That’s why we are shifting standard range cars to an iron cathode,” Musk said. Tesla recently hiked the prices of its Model 3 and Model Y cars in the US and China, the world’s biggest car market, due to high raw material prices.

Its rivals in China including XPeng (NYSE:XPEV), Li Auto (NASDAQ:LI) and BYD (HKG:1211) also announced price hikes to counter rising raw material costs. However, NIO (NYSE:NIO), another local player, last week said it has no plans to raise prices at the moment after its sales have lagged behind its rivals XPeng and Li Auto for five straight months.

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The Japanese yen fell to a seven-year low of 125 against the US dollar on Monday as the Bank of Japan continued easing its monetary policy further widening the gap with the US Federal Reserve’s hawkish tone.

But instead of seeing it as a threat to the Japanese economy, the BOJ reiterated that a weaker yen would have positive effects on pushing Japan’s GDP higher.


BOJ’s divergence from Fed

The US central bank recently raised interest rates for the first time since 2018 and signalled more rate hikes in the coming months to tame rising inflation. The US consumer inflation rate skyrocketed to a four-year high of 7.9% in February, prompting the Fed to take a more hawkish stance despite the lingering COVID-19 pandemic and geopolitical uncertainties.

Conversely, the BOJ continued to loosen its monetary policy, reiterating that it would maintain interest rates at ultra-low levels to support Japan’s economic recovery and as inflation stays below its 2% target. The central bank also offered to purchase an unlimited amount of government bonds from Monday through Thursday this week at 0.25%.

The offer is for debts with maturities of more than five years and up to 10 years. The move is one of the BOJ’s attempts to contain rising bond yields despite US Treasury yields reaching new multi-year highs.

Adding pressure to the yen

The measure further weighed on the yen on Monday, with economists from ING Bank expecting upside risks to prevail beyond 125. They said "130 is well within reach in the near term unless the bond environment improves.”

A depreciation in the Japanese yen would drive up the costs of imports, ultimately hurting households as it would increase the costs of imported goods and other goods for consumption.

It also pushed Japan’s core inflation to a two-year high of 0.8% in March, quicker than market forecasts.

US and Japan inflation and interest rates

Preference for a weaker currency

While many economies beef up efforts to boost the value of their currencies, Japan has been aiming to devalue its currency to gain a competitive advantage in foreign trade. A weak yen will make Japan-made goods more competitive overseas and increase profits that Japanese companies make in foreign markets. It would also lift services exports and increase net income receipts from abroad when converted into yen.

Back in January, the BOJ estimated that a 10% drop in the yen would boost Japan’s gross domestic product by about 1%. In the final months of 2021, Japan’s GDP rose 4.6% year over year, lower than its previous forecast for a 5.4% rise. Fitch Ratings expects Japan’s inflation at 1.8% this year on the back of higher energy prices and yen depreciation.

Preventing another 1998 yen volatility

As the yen continues to fall against the greenback, the markets are closely watching for a recurrence of a wild rebound that occurred in the USDJPY in 1998 at the height of the Asian financial crisis. At the time, the US dollar fell by almost 15% versus the yen from its previous peak. That slump was preceded by a three-year yen depreciation as Japanese authorities believed the yen was overvalued.

Will the yen hit 150 against the greenback?

The question of whether the yen will reach 150 versus the US dollar is more of a when as the Fed maintains its hawkish stance and as the BOJ is poised to keep its loose monetary policy setting in the medium term. This would further widen the gap between their policies, sending the yen lower as Japan continues to book current account deficits due to a jump in oil import prices.

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For years, climate change and extreme weather events, coupled with a ballooning population, have had an impact on food production and supply globally. The lingering COVID-19 pandemic and its effect on supply chains, as well as the recent geopolitical tensions involving two of the world’s largest food producers have further exacerbated fears of a looming food crisis.

In February, the FAO Food Price Index, which tracks global food prices, jumped to an all-time high, driven by higher prices of vegetable oil, dairy, cereals and meat.

The data by the UN Food and Agriculture Organization underscored the domino effect of rising energy prices and supply chain disruptions on the entire food and beverage industry, from upstream agro-processing industries down to downstream sectors including food retailers.

Wheat prices soar to record highs

Wheat, one of the most widely grown food crop in the world, is at risk of facing a supply crunch as the war between Russia and Ukraine drags on. Both countries account for about 30% of the global wheat production.

The crisis has led to US wheat futures soaring past record levels set in 2008.  However, growers are finding it hard to cash in on the surge in prices as farm cooperatives, flour millers and exporters have stopped buying wheat harvest for future delivery over fears that they may not be able to pocket gains from reselling, according to a Reuters feature.

Failure to sell their winter wheat may prompt farmers to cut down on their spring planting, potentially leading to further shortages and elevated prices.

Coffee prices shoot up

The price of coffee, a staple for many, is also on the rise mainly due to adverse weather conditions in a number of growing countries like Brazil, as well as supply chain delays linked to the resumption of economic activities in many countries.

In 2021, Arabica coffee futures grew 76%, the largest annual jump since 2010, according to The Wall Street Journal. The increase came as Brazil, the world’s top coffee-growing country, suffered damaging frosts that followed its worst drought in 91 years, curbing coffee production. The USDA’s Foreign Agricultural Service estimates a 19% drop in Brazil’s coffee production for the fiscal year ending in June 2022.

Coffee sellers and roasters have resorted to passing on the price pressures to customers, with Nestlé (OTCMKTS:NSRGY), which sells its coffee under the Nescafé brand, hinting in October that it would increase prices this year.

US coffee giant Starbucks (NASDAQ: SBUX) also disclosed plans to further hike prices to counter rising costs.

Sugar rush intensifies

Sugar, a staple pantry ingredient, is also seeing historically high prices. Although the impact of the Ukraine war on sugar is limited as Ukraine and Russia are not major exporters of the commodity, the surge in crude oil prices are predicted to boost the demand for sugar-based ethanol, leaving less sugar for exports and for food production.

Brazil, the world’s largest sugar exporter, was recently reported by Reuters to have shipped nearly 200,000 tonnes of raw sugar to Russia as concerns of stockpiling led to stronger demand for sugar and other food staples in the country.

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Rivian Automotive (NASDAQ: RIVN), the budding electric vehicle maker, initially bank-rolled by the likes of Ford (NYSE: F) and Amazon (NASDAQ: AMZN), is currently trading 80% lower than its peak since listing on the Nasdaq stock exchange.

Bear in mind that Rivian was listed on the Nasdaq in November 2021, when you had to be very unlucky not to make money in the stock market, especially as a company working in the electric vehicle domain. In a sign of the jubilant (and bygone?) era, within days of listing, investor exuberance had pushed RIVN up by 115%, to US $170 per share. RIVN’s market electricity has fizzled in the following five months and could do with a recharge.

The Rivian stock price is currently trading very close to an all-time low, at US $37.00, 80% lower than its all-time high. In contrast, Tesla (NASDAQ: TSLA), a company which Rivian investors hope can be emulated, is trading 25% lower than its all-time high (US $1,200 vs US $900), which it reached in November 2021 (roughly the same time Rivian reached its all-time high).


RIV only just begun

As illustrated by its latest earnings call, Rivian has a momentous scope for growth.

In its Full Year 2021 earnings call, which was released on March 10, 2022, Rivian reported its first bout of revenue, a tiny US $55 million against a cost of revenue of US $520 million and other operating expenses (mainly R&D and administration) of US $3.7 billion. Consequently, Rivian reported a total net loss (inclusive of all costs) of US $4.7 billion for the full year.

The massive discrepancy between the company’s revenue and costs is a natural part of its growing pains. The automobile industry’s huge barrier to entry means that Rivian expects to be making a net loss for some time. However, it does expect to be profit-neutral by the end of the next financial year, and this might be what is more important for investors following the company.

No fast-charging solution

Rivian is still valued at over US $30 billion and far from a bust. However, it will perhaps take years for the company to charge its stock price back up to its IPO price of US $78.00. Even in the age of outsized valuations for EV companies and some residual investor exuberance in the market, investor confidence is butting up against obstacles such as the infamous chip-shortage affecting numerous car companies and tightening monetary policy from the US Federal Reserve.

To hasten the process and to overcome some of these obstacles on its way back to its IPO price, Rivian may have make better use of its US $18 billion cash reserve and carve out more than its planned 10% takeover of the EV market by 2030.

As it stands, Rivian’s total theoretical capacity at its two factories (600K) could garner 10% of the 2021 electric vehicle market. However, By 2030, electric vehicles sales are predicted to account for 1-in-2 vehicles sold, from a current 1-in-10. To account for 10% of all EVs sold in 2030, Rivian will have to boost production capacity to approximately 3 million vehicles per year.

For interest, Rivian generated its 2021 revenue of US $55 million on delivery of 2500 electric vehicles. The company’s guidance for 2022 expects to deliver 25K vehicles, which is a huge increase on its current production numbers, but fantastically far from the number of pre-orders on its books (83K) and unimaginably far from its 10% goal of 3 million.

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After waging war against Ukraine that triggered a humanitarian crisis as well as skyrocketing oil prices that fueled global inflation concerns, Russia has been hammered with a series of sanctions by Western governments in an attempt to weaken its economy.

Foreign nations have slapped economic sanctions on Vladimir Putin's government and among the most sweeping sanctions are efforts to cut Russia’s access to the global financial system.

Russian banks have been barred from using the Society for Worldwide Interbank Financial Telecommunications (SWIFT) payment system that connects banks in 200 countries and regions to more than 11,000 financial institutions globally.

Washington and its European allies have also moved to cut off the Russian central bank from overseas transactions, further restricting Russia’s ability to use its international reserves to fund the war.

The cost of Putin’s war

The actual cost of the Ukraine invasion on Russia may be far less than the magnitude of damage on Ukrainians, although it has definitely taken a toll on Russians as wars are expensive.

A recent study by Ukraine-based think-tank Center for Economic Recovery estimates that an almost 100-hour full-scale invasion cost the Russian economy $7 billion in direct losses including $2.7 billion of potential GDP loss in the next 40 years.

If the war drags on, Russia might have to bank on its reserves to continue funding its military.

How much foreign reserve does Russia have?

As of mid-February, before Russia started to invade Ukraine, the country had amassed $643 billion in international reserves, according to the Bank of Russia. But with the unprecedented sanctions imposed on the Russian central bank, much of the country’s foreign exchange reserves have been rendered useless.

Russian central bank assets held in US banks have also been frozen and financial institutions outside the US that hold dollars for the central bank will be unable to transfer the assets.

With the restricted access to the US dollar, Russia may be prompted to use its gold reserves to support its deteriorating economy. The central bank earlier this week suspended purchases of gold from banks amid increased demand from households, which the Bank of Russia attributed to the cancellation of value-added tax on consumers’ gold purchases. The central bank did not disclose when it will resume buying gold from banks.

Russia had built more than $130 billion worth of gold as of the end of January, accounting for about 22% of its reserves, data from the central bank showed.

A large portion of Russia’s foreign currency and gold reserves are kept in China, France, Japan, Germany and the US as of mid-2021, according to a now unavailable report by the Bank of Russia that was archived by Wayback Machine. Russia and China are seen as de-facto allies, making it easy for the Kremlin to recover its gold from Asia’s largest economy.

Targeting Russian gold to cripple Kremlin

However, with no signs of Putin backing down from the war, US lawmakers are now targeting Russia’s access to its gold. A bipartisan bill was introduced last week, aiming to apply sanctions to any American entities that transact or transport gold from Russia’s central bank or sell gold physically or electronically in Russia.

"Russia’s massive gold supply is one of the few remaining assets that Putin can use to keep his country’s economy from falling even further,” US Senator Angus King, one of the bill’s authors, said.

Acknowledging the Ukraine conflict’s impact on the Russian economy

Putin has acknowledged that the Russian economy had suffered a setback from the war, saying in televised remarks on Wednesday that Russia "will have to make deep structural changes in our economy.”

"I will not pretend that they will be easy or that they will not lead to a temporary increase in inflation and unemployment.”

On Sunday, International Monetary Fund Managing Director Kristalina Georgieva told CBS's "Face the Nation" program that Russia may default on its debts, triggering a deep recession in its economy this year.

The Russian ruble fell to 105.45 against the US dollar on Thursday.

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News of Alphabet (NASDAQ: GOOGL) and Amazon's (NASDAQ: AMZN) upcoming stock splits has caused excitement for retail investors, shifting the focus from soaring inflation and fuel prices, while some traders are already speculating the next mega-cap stock to split as exceptionally high-value companies seek to make their shares more affordable for mom-and-pop investors.

Why are Alphabet and Amazon splitting stocks?

Google and YouTube’s parent Alphabet, and e-commerce behemoth Amazon have become two of the world’s most valuable companies and also among the priciest stocks.

On Feb. 1, Alphabet said it is performing a 20-for-1 stock split, giving 19 additional shares to shareholders on the record date of July 1, with the split expected to take effect on July 15. The move comes about eight years after Alphabet last split its stock.

Amazon followed suit on, announcing on March 9 that its board has approved a 20-for-1 stock split, its first since the dot-com boom in 1999 and its fourth since it went public in 1997. Assuming that the plan gets shareholder approval on May 25, the tech giant will issue 19 additional shares for every one share on May 27, with trading on the new stocks scheduled on June 6.

Who will be the next large-cap to announce a split?

With two of the Silicon Valley giants eyeing a split in the coming months, the focus is now on the next company to enact a split. Markets are closely watching Tesla (NASDAQ: TSLA) after the electric carmaker’s share price reached the $1,000 mark nearly five months ago. Tesla carried out a 5-for-1 stock split in August 2020 when its share price surged past $1,000.

Tesla’s split came around the same time that Apple (NASDAQ: AAPL) also launched a 4-for-1 stock split. An Apple stock split this year, however, may appear unlikely as the company’s stock is only trading at around $150, well below its $502 share price when it carried out its split in 2020.

Chipotle Mexican Grill (NYSE: CMG), currently trading above the $1,000 mark, is another potential stock that could split as the company has yet to carry out a split since its IPO in 2006. As of Tuesday, Chipotle’s shares have more than tripled over the last five years to $1,494.

AutoZone (NYSE: AZO), which hit the $2,000 mark in December, could likewise pursue a split as the last time it did was in April 1994. Even with the absence of a split for nearly three decades, the automotive parts company has carried out a number of share buybacks.

Booking Holdings (NASDAQ: BKNG), trading near $3,000, could also carry out a split. The company’s high share price could be partly attributed to a reverse stock split it enforced in 2003 when the travel services provider, formerly known as Priceline, issued one share for every six shares held by investors.

Broadcom (NASDAQ: AVGO), Shopify (NYSE: SHOP) are two other candidates for a stock split, with their share prices settling at above $500 recently.

Can you take advantage of a stock split?

As with any investment, it is critical to conduct a risk assessment before you dive in. The low stock prices may help you build a position in a formerly high valued stock that will now be available to a broader set of investors. Demand may also rise, further boosting a company’s share price following the split.

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The US Federal Reserve kicked off its Federal Open Market Committee (FOMC) meeting on Tuesday, with the markets widely anticipating a 25 basis-point hike in what would be the first interest rate increase since 2018.

Fed Chair Jerome Powell had earlier raised the prospect of a 25bp hike, telling a House financial services committee hearing two weeks ago that he is "inclined to propose and support” the increase as inflation has sat above 2% and as the United States’ labor market continued to recover.

High inflation underscores need for tightening

With the US consumer inflation soaring to a 40-year high of 7.9% in February, a rate hike this week is highly anticipated, although uncertainty lies in how much the Fed will have to tighten to tame inflation. Markets are also pricing in up to six or seven hikes this year, one for each of the upcoming FOMC meetings.

Higher inflation expectations among US consumers, according to surveys by the New York Fed and Cleveland Fed, also ramp up the likelihood of a more hawkish Fed.

US Inflation

50bp hike also on the table

Although many market watchers anticipate a 25bp hike when the Fed caps off its meeting on Thursday, some economists say a 50bp is also likely. Last month, St. Louis Fed President James Bullard called for a full percentage-point hike by July 1.

ING Bank’s Chief International Economist James Knightley in a note last week said it wouldn’t be surprising “to see maybe two FOMC members vote for 50bp.”

Knightley and other economists from the Dutch bank most recently said markets are back to pricing 160bp hikes in six meetings in total for 2022, although the Fed may have five rate hikes planned for the year.

Russia-Ukraine war places Fed in a precarious spot

However, the worsening conflict between Russia and Ukraine, which has reached its third week, puts the Fed on alert due to expectations that the war could worsen inflation and result in a potential global economic recession that could derail the United States’ recovery momentum.

Still, the Fed appeared to be undeterred by the crisis, with Powell saying in a recent speech to Congress that the near-term effects of the war and Western sanctions on Russia remain highly uncertain.

"Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook,” Powell said.

Squeezing household income

A rate hike in the US — the first since the COVID-19 pandemic emerged — could further squeeze household income at a time when gas prices hover around record highs. Gasoline prices in the US surged to an all-time high of $4.33 on Friday, before retreating over the weekend, according to data from the American Automobile Association.

Higher interest rates will raise borrowing costs in banks, lifting variable rates on credit card debt and affecting interests on auto loans and mortgages. This could further weigh on consumer’s spending habits.

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