China in the line of fire – Citadel Global Weekly Wrap 8 April 2022

Bianca Botes, Director Citadel Global


China is, by far, the biggest economy that is not willing to openly condemn the invasion of the Ukraine by Russia. They might, however, be setting themselves up for action from the international community, as they put themselves in the line of fire for sanctions and other economically crippling actions.

Key themes for the week include:

  • China in line for sanctions, should it continue supporting Russia
  • European Central Bank (ECB) edging closer to cutting stimulus
  • European shares recoup some losses
  • Russian ruble back to pre-war levels


Sanctions imposed on Russia over its war in Ukraine should give China a “good understanding” of the consequences it could face, should it provide material support to Moscow, United States (US) Deputy Secretary of State Wendy Sherman said on Wednesday. This rather targeted message comes after China refused to condemn Russia’s military action in Ukraine, while criticising the West’s sanctions against Russia.

China and Russia have become closer allies in recent years, much to the West’s dismay. In February 2022, however, the two nations reached a “no limits” partnership, that was aimed at countering the US’s global influence. The two countries jointly announced this partnership in February, stating that it surpasses any alliance, and that there are no areas of cooperation that are off limits. Russia proceeded to show support for the “One China” narrative driven by Beijing, while China reciprocated with support towards Russia’s stance against NATO.

As many fear that China may assist Russia in their military endeavours, Li Daokui, former advisor to the People’s Bank of China, China’s central bank, believes that China’s involvement will mostly include humanitarian efforts on the ground in Russia, with China supporting Russian citizens with food and other needs brought on by the West’s economic sanctions.

While China seems to be conflicted at this stage, one can expect them to be strategic in their approach, as they try to appease both sides, without causing harm to their partnerships and own economic wellbeing. With threats of sanctions looming over China, other countries who have not been willing to openly condemn Russia for the war in the Ukraine, might soon also find themselves in the spotlight, forcing them to “choose a side” or bear the consequences.


The number of Americans filing new claims for unemployment benefits decreased by 5 000 to 166 000 in the week ending 2 April, from a revised 171 000. This reading now brings unemployment claims back to a 53-year low.

Minutes from the last Federal Open Market Committee (FOMC) meeting in March, indicated that a number of US Federal Reserve (Fed) officials would have preferred a 50 basis point increase in the Fed’s funds rate, instead of a 25 basis point hike. Fed officials also considered that it would be appropriate to move the stance on monetary policy more quickly toward a neutral posture and that a move to tighter policy could be warranted, depending on economic and financial developments.

Minutes of the ECB monetary policy meeting held on 9 and 10 March saw policymakers argue that it was no longer evident that the pace of asset purchases continued to be proportionate, and the general view was that purchases had now fulfilled the objective. At the same time, many ECB policymakers believe the current high level of inflation, and its persistence, called for immediate steps towards monetary policy normalisation, while conditions for lifting rates had either been met or were about to be met. Annual producer inflation in the eurozone hit a record high of 31.4% in February, compared to 30.6% in January, on the back of surging energy costs, which jumped 87.2%, followed by a rapid rise in the cost of intermediate goods.

The S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) was revised higher to 60.9 in March from a preliminary level of 59.7 and above February’s 59.9, to signal the fastest rise in private sector activity since June 2021. Stronger economic growth reflected a sharp and accelerated upturn in service sector output. In contrast, manufacturing production increased at its slowest pace since October 2021. Rising workloads and constrained business capacity resulted in another robust expansion of private sector employment numbers during March. The latest increase in staffing levels was at its highest level in seven months.

The S&P Global South Africa PMI increased to a four-month high of 51.4 in March from 50.9 in the previous month. It was the third consecutive month of expansion in the private sector. Meanwhile, output levels fell back into contraction territory as soaring input costs and material shortages disrupted activity.


US stock-futures contracts, tied to the three major indices, were mostly flat on Thursday as investors digested the hawkish tone in the latest FOMC minutes. Investors now wrestled with the twin shocks, that of an aggressive tightening, potentially causing a recession and more Western sanctions on Russia, further stoking inflation. Meanwhile, Hewlett-Packard Inc. surged 15% in the premarket, after Warren Buffett’s Berkshire Hathaway disclosed a stake in the tech hardware manufacturer.

European stocks traded mostly higher on Thursday, clawing back losses after posting the steepest fall in almost a month, as investors clambered to buy beaten down stocks. Market sentiment was dominated by a hawkish surprise in US Fed minutes. Meanwhile, European Union (EU) nations are expected to finalise a new package of sanctions on Moscow. Among sectors, automotive and healthcare stocks led gains, while mining and energy shares stumbled. The DAX gained 0.2%, slightly behind the 0.3% rise in the STOXX 600.

The United Kingdom’s (UK’s) FTSE 100 drifted lower on Thursday, underperforming its European peers, as the key oil & gas sector retreated on concerns over massive impairments. Major oil company, Shell, said it will write off between $4 billion and $5 billion from its asset sheet due to its exit from Russia. Meanwhile, the UK slapped tougher sanctions on Moscow, freezing assets of Russia’s largest lender Sberbank, among others, as well as tapering down commodity imports by the end of 2022.

Japan’s Nikkei 225 Index lost 1.7%  on Thursday while the broader TOPIX Index lost 1.6%, falling to its lowest level in over two weeks and tracking Wall Street’s technology-led downward move, which was driven by expectations of the Fed tightening its monetary policy more rapidly. Chip-related firms led the sell-off, with sharp losses from Lasertec ,Tokyo Electron , Keyence, Advantest and Mitsui High-tec Inc.

The local JSE FTSE all Share Index traded at its lowest level since 16 March, on the back of more hawkish comments from the US Fed officials and a new round of Western sanctions on Russia, which weighed on investor sentiment. The stumble in the index was led by commodity-driven stocks, with Northam Platinum being the biggest loser as it shed 5.8%.


EU natural gas extended its descending trend for a fifth consecutive session, with front-month futures easing to €106.00 per megawatt-hour. The EU remains divided over shunning Russian natural gas imports, while steady LNG shipments and warmer weather helped calm concerns around supply cuts. Additionally, parts of Europe have seen high wind power generation amid strong seasonal winds, which eased demand for natural gas from power plants. Although a ban on coal imports is most likely to be announced later, EU leaders remained divided over an oil and gas ban.

West Texas Intermediate crude futures rose more than 1%, to over $97 per barrel, in volatile trading on Thursday. The futures recouped some losses after tumbling 5.6% in the previous session, as traders reassessed news that consuming nations will release a huge amount of oil from strategic reserves to offset supply lost from Russia. The International Energy Agency member countries agreed to release 60 million barrels, on top of a 180-million-barrel release announced by the US last week, to help drive prices down in a tight market.

Gold hovered near $1,920 an ounce on Thursday, remaining flat for more than a week, as bets increased that the Fed would tighten monetary policy faster than expected. Meanwhile, investors continue to monitor the war in Ukraine, which is far from over.


The US Dollar Index held above 99.5 on Thursday, trading near levels not seen since May 2020, on the back of a hawkish Fed. FOMC meeting minutes showed the Fed will likely reduce its balance sheet by $95 billion a month from May, which is higher than the monthly reductions made between 2017 and 2019. In addition, risk appetite was diminished as the West prepared for new sanctions on Moscow over civilian killings in northern Ukraine. The EU has proposed to ban Russian coal and the US is targeting Russian banks and elites.

The Russian ruble (₽) strengthened past ₽80/$ on Thursday, to levels last seen before the invasion of Ukraine, as the currency shrugged off a new round of sweeping sanctions by the West. The ruble held firm despite fears that Russia was edging closer to a potential default on its international debt, as it paid dollar bondholders in rubles, noting it would continue to do so as long as its foreign exchange reserves were blocked by sanctions. The Russian currency recovered steep losses, driven by international sanctions, as authorities raised the policy rate to 20%, imposed strict capital controls, avoided sovereign defaults, and intervened in the financial markets

The euro fell to around $1.09, closing in on a nearly two-year low of $1.0804 reached on 7 March. The currency was dragged down by concerns over the outlook of the bloc’s economy, amid the war in Ukraine and surging inflation.

The South African rand traded near the R14.70/$ mark, its lowest level since 28 March, as investors sought the safety of the dollar, amid the prospect of more sanctions on Russia and a hawkish Fed. Further losses were limited by local factors, including the removal of negative outlooks set for South Africa by credit agencies Fitch and Moody’s, as well as the removal of the National State of Disaster, which, in response to COVID-19 pandemic, was in place for over two years.

The rand is trading at R14.75/$ R16.03/€ and R19.27/£.