The story behind Ukraine's separatist regions

Summary:

Russian President Vladimir Putin has recognized the independence of Moscow-backed rebel regions in eastern Ukraine, a move that will further fuel tensions with the West amid fears of Russian invasion.

The story behind Ukraine's separatist regions_1

Russian President Vladimir Putin on Monday recognized the independence of Moscow-backed rebel regions in eastern Ukraine, a move that will further fuel tensions with the West amid fears of Russian invasion.

Putin's move follows days of heightened tensions in Ukraine's eastern industrial heartland, where Ukrainian forces are locked in a nearly eight-year conflict with Russia-backed separatists that has left more than 14,000 people dead.

SEPARATIST REBELLION IN THE EAST

When Ukraine’s Moscow-friendly president was driven from office by mass protests in February 2014, Russia responded by annexing Ukraine’s Crimean Peninsula. It then threw its weight behind an insurgency in the mostly Russian-speaking eastern Ukraine region known as Donbas.

In April 2014, Russia-backed rebels seized government buildings in the Donetsk and Luhansk regions, proclaimed the creation of “people’s republics” and battled Ukrainian troops and volunteer battalions.

The following month, the separatist regions held a popular vote to declare independence and make a bid to become part of Russia. Moscow hasn’t accepted the motion, just used the regions as a tool to keep Ukraine in its orbit and prevent it from joining NATO.

Ukraine and the West accused Russia of backing the rebels with troops and weapons. Moscow denied that, saying any Russians who fought there were volunteers.

Amid ferocious battles involving tanks, heavy artillery and warplanes, Malaysia Airlines Flight 17 was shot down over eastern Ukraine on July 17, 2014, killing all 298 people aboard. An international probe concluded that the passenger jet was downed by a Russia-supplied missile from the rebel-controlled territory in Ukraine. Moscow still denied any involvement.

PEACE AGREEMENTS FOR EASTERN UKRAINE

After a massive defeat of Ukrainian troops in August 2014, envoys from Kyiv, the rebels and the Organization for Security and Cooperation in Europe signed a truce in the Belarusian capital of Minsk in September 2014.

The document envisaged an OSCE-observed cease-fire, a pullback of all foreign fighters, an exchange of prisoners and hostages, an amnesty for the rebels and a promise that separatist regions could have a degree of self-rule.

The deal quickly collapsed and large-scale fighting resumed, leading to another major defeat for Ukrainian forces at Debaltseve in January-February of 2015.

France and Germany brokered another peace agreement, which was signed in Minsk in February 2015 by representatives of Ukraine, Russia and the rebels. It envisaged a new cease-fire, a pullback of heavy weapons and a series of moves toward a political settlement. A declaration backing the deal was signed by the leaders of Russia, Ukraine, France and Germany.

A FROZEN CONFLICT IN UKRAINE

The 2015 peace deal was a major diplomatic coup for the Kremlin, obliging Ukraine to grant special status to the separatist regions, allowing them to create their own police force and have a say in appointing local prosecutors and judges. It also envisaged that Ukraine could only regain control over the roughly 200-kilometer (125-mile) border with Russia in rebel regions after they get self-rule and hold OSCE-monitored local elections — balloting that would almost certainly keep pro-Moscow rebels in power there.

Many Ukrainians see it as a betrayal of national interests and its implementation has stalled.

The Minsk document helped end full-scale fighting, but the situation has remained tense and regular skirmishes have continued.

With the Minsk deal stalled, Moscow’s hope to use rebel regions to directly influence Ukraine’s politics has failed but the frozen conflict has drained Kyiv’s resources and effectively stymied its goal of joining NATO — which is enshrined in the Ukrainian constitution.

Moscow also has worked to secure its hold on the rebel regions by handing out more than 720,000 Russian passports to roughly one-fifth of their population of about 3.6 million. It has provided economic and financial assistance to the separatist territories, but the aid has been insufficient to alleviate the massive damage from fighting and shore up the economy. The Donbas region accounted for about 16% of Ukraine’s GDP before the conflict.

EFFORTS TO REVIVE PEACE DEAL

Amid soaring tensions over the Russian troop concentration near Ukraine, France and Germany embarked on renewed efforts to encourage compliance with the 2015 deal, in hopes that it could help defuse the current standoff.

Facing calls from Berlin and Paris for its implementation, Ukrainian officials have strengthened their criticism of the Minsk deal and warned that it could lead to the country’s demise. Two rounds of talks in Paris and Berlin between presidential envoys from Russia, Ukraine, France and Germany have yielded no progress.

The lower house of the Russian parliament, meanwhile, urged Putin last week to recognize the independence of Ukraine's rebel regions.

PUTIN RECOGNIZES REBEL REGIONS' INDEPENDENCE

Putin’s recognition of the rebel-held territories’ independence effectively shatters the Minsk peace agreements and will further fuel tensions with the West. He said that Moscow would sign friendship treaties with the rebel territories, a move that could pave the way for Russia to openly support them with troops and weapons.

The move follows several days of shelling that erupted along the line of contact in Donetsk and Luhansk. Ukraine and the West accused Moscow of fomenting the tensions to create a pretext for an invasion. Russia, in turn, accused Ukraine of trying to reclaim the rebel-held territories by force, the claim that Kyiv strongly rejected.

On Friday, separatist leaders released video statements announcing the evacuation of civilians in the face of what they described as a Ukrainian “aggression." The data embedded in the video indicated that their statements had been pre-recorded two days earlier when the situation was still relatively calm, suggesting a deliberate plan to try to sever the regions from Ukraine.

The rebel chiefs put out new video statements Monday urging Putin to recognize their regions' independence and the Russian leader responded quickly by convening a carefully orchestrated meeting of his Security Council and then signing the recognition decrees in a televised ceremony.

Source: ABC NEWS

Risk Warnings and Disclaimers

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Daily News

【Quick Facts】

1. Putin announced the recognition of the Donetsk and Luhansk republics as independent states.

2. If Russia invades Ukraine, the U.S. will cut off its dealings with some Russian banks.

3. Britain announced the plan of "living with COVID," becoming the first Western country to remove all restrictions on pandemic prevention.

4. Federal Reserve Bowman: support for March rate hike, the magnitude should be determined by the data.

5. Iran's Foreign Ministry: still far from reaching an agreement.

6. Canada Prime Minister Trudeau: The state of emergency against truck driver protests is still not over.

【News Details】

1. Putin announced the recognition of the Donetsk and Luhansk republics as independent states.

In a phone call with French President Emmanuel Macron and German Chancellor Gerhard Scholz on 21 local times, Russian President Vladimir Putin said that he would sign the order to recognize the Donetsk and Luhansk republics. Putin chaired a meeting of the Russian Federation Security Council in the Kremlin to discuss the Donbas issue. Putin expects all participants to base the forum on the request of the leaders of Donetsk and Luhansk civil forces to call on Russia to recognize them as independent states.

2. If Russia invades Ukraine, the U.S. will cut off its dealings with some Russian banks.

The U.S. has prepared an initial sanctions package against Russia. Still, it would only be implemented in the event of a Russian invasion of Ukraine, foreign media said, citing people familiar with the matter. Potential measures include a ban on U.S. financial institutions from processing transactions with major Russian banks and would also place specific Russian individuals and companies on its list of specially designated nationals, prohibiting them from conducting transactions with Americans and freezing their assets in the United States.

3. Britain announced the plan of "living with COVID," becoming the first Western country to remove all restrictions on pandemic prevention.

British Prime Minister Johnson said in the House of Commons of Parliament on Monday that from this Thursday, people infected with Coronavirus will no longer be required by law to self-quarantine but are still advised to avoid going outside. Free testing of the entire population for new coronavirus will also end from April 1. England will withdraw its quarantine restrictions, becoming the first major Western country to announce a complete withdrawal of government restrictions related to the pandemic.

4. Federal Reserve Bowman: support for March rate hike, the magnitude should be determined by the data.

Fed Governor Bowman said he will closely monitor the data to judge the magnitude of the March rate hike, with the goal of taking strong measures to curb inflation. Bowman also said that the next few months may be appropriate to raise interest rates and start tapering.

5. Iran's Foreign Ministry: still far from reaching an agreement.

Iran's Foreign Ministry spokesman said that the current negotiations had made significant progress, but the remaining topics are the most difficult and crucial. Iran is waiting for Europe and the U.S. to make a decision, but as of now, they are not showing the seriousness they deserve, and there is still a long way to go before an agreement aimed at saving the Iran nuclear deal is reached.

6. Canada Prime Minister Trudeau: The state of emergency against truck driver protests is still not over.

On Feb. 21 local time, Canada's Prime Minister Justin Trudeau said his government would retain emergency powers for at least a few more days because of the ongoing threat, even after police clear all blockades across the country. Trudeau added that there are indications that some truckers are regrouping outside Ottawa and that they may start another occupation.

【Today Focus】

17:00 Germany IFO Business Climate Index (Feb)

19:00 U.K. CBI Industrial Trends - Orders (Feb)

22:00 U.S. FHFA House Price Index MoM (Dec)

22:45 U.S. IHS Markit Services PMI Prelim (SA) (Feb)

23:00 U.S. Conference Board Consumer Confidence Index (Feb)

Risk Warnings and Disclaimers

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A for Accommodative Policy

The euro area will likely benefit from an accommodative monetary and fiscal policy mix at a time when policy elsewhere is being tightened. We think the ECB will continue expanding its balance sheet in 2022 and is unlikely to hike rates until mid-20231. But we expect the Fed to raise interest rates roughly five times this year and, starting in Q3, to engage in quantitative tightening.

Fiscal policy is also likely to be more supportive in the euro-zone. We estimate that the impulse from fiscal policy in Europe will remain expansionary in 2022 as Recovery Fund disbursements begin. By contrast, after negotiations on the Build Back Better Act stalled late last year, a pullback in fiscal support in the US looks inevitable.

Divergent policy in these economies should ensure that liquidity in Europe remains lush and financial conditions stay favorable for at least another year.

B for Beneficial Sectorial Composition

European equities offer an interesting mix of cyclical exposure and secular growth. That will be important as inflation replaces deflation as a key risk and a world of quantitative easing gives way to one of quantitative tightening. We expect this shift to support some further re-rating of value sectors in the market over the next year or so.

The MSCI Europe’s high concentration of cyclical sectors (~75% according to MSCI’s classification) and value-style stocks (>50%) lead us to believe these indices may do well in this environment. Historically European equities have delivered positive returns when the Fed hikes rates. This has been particularly so once the Fed has begun on a steady and gradual hiking process.

On average, the MSCI Europe returned 16% annualized during Fed hiking cycles (see Figure 1), which is well above the 6% average annual return of the past 20 years. This seems to be mainly a function of the European indices’ high concentration of stocks less sensitive to interest rate moves.

Why European Equities? It's as Simple as ABC_1

European stocks are also very sensitive to global growth dynamics. European companies generate roughly 60% of their revenues from abroad, which compares with just 30% for US firms2. Given our view that 2022 will deliver another year of above-trend growth, with economies outside of the US expected to narrow the gap, we believe European equities are set to benefit from this catch-up in growth differentials.

Looking beyond 2022, we believe that innovation will remain the main driver of equity markets in the post-pandemic cycle. But in a world that will be shaped by the concurrent revolutions in digitalisation and decarbonisation, we think that returns will be less bifurcated by sectors and factors than in the past. Investors should look for emerging companies in new areas of technology as drivers of growth as well as new companies and incumbents using technology to transform business models in industries outside of the technology sector.

We think the changes to the sectoral composition of European equities over the past decade (Figure 2 illustrates this for the MSCI Europe) make them uniquely positioned to benefit from the broadening of the digital revolution across industries and the increased focus and spending on decarbonisation. The short-term re-rating in value stocks as economies continue to reopen and rising interest rates put pressure on longer duration stocks should also benefit European equities.

Why European Equities? It's as Simple as ABC_2

The result, in our view, may turn out to be increased earnings convergence between US and European stocks. So as alpha becomes more important in a lower-return and higher-risk environment, investors may benefit from having the widest opportunity set possible and not limiting investments to the US.

C for Compelling Valuations

Until recently, record-low interest rates meant that equities still represented relative value despite historically high valuations. But with front-end interest rates set to rise rapidly in the next couple of years, relative valuations are going to be an increasingly important consideration when investing, as high multiples often lead to lower future returns.

Figure 3 illustrates how valuations in Europe, as measured by the 12-month forward PE ratios, are much lower than those in the US. This is largely due to differences in the sectoral compositions of the two stock markets. Ever-lower bond yields have boosted the valuation of longer-duration equities in sectors such as technology at the expense of shorter-duration equities like value stocks over the past 10 years. The result: extremely low valuations in markets like Europe that are heavily weighted toward cyclical or traditional value industries and high valuation in technology-heavy markets like the US.

Why European Equities? It's as Simple as ABC_3

But even after adjusting for the differences in sectoral composition, valuation gaps between the two markets remain significant. This suggests that, while the US equity market should still perform well, there is more room for rising valuations, on a relative basis, outside of the US. We think that European equities offer attractive value, particularly for investors trying to reduce exposure to the most expensive areas of the market.

The Takeaway: ABC

Rising interest rates are generally not an outright negative for equity markets. The crucial variable is economic growth. And while volatility has increased, we don’t think the current and prospective fundamentals are consistent with a recession within the next 12 months. In other words, we believe equities will make progress this year.

The recent value rotation points to potential benefits from a larger allocation to European equities. In fact, we think the accommodative policy outlook, beneficial sectoral composition and compelling valuations mean the opportunity cost of not investing in European equities today is higher than ever.

Source：Goldman Sachs

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As the Ukraine crisis escalates Middle East countries will be forced to pick a side

The prospect of a Russian invasion of Ukraine would put them in the difficult position of choosing between doing business with the West or with Moscow.

A possible war in Ukraine will certainly affect some areas that are of great importance for the Middle East region: energy, agriculture, the question of refugees, and state relations with the West and Russia.

As Russian natural gas accounts for about 40% of the EU gas market, it would be very difficult to fully replace it in case of Russian cuts. Surely, the US would require Qatar and Saudi Arabia to do their utmost to cover the shortfall, but this is easier said than done.

It is worth recalling, that Qatar has recently been designated by the US as a major non-NATO ally, and that on January 31, US President Joe Biden had discussed this issue in Washington with the Emir of Qatar Tamim bin Hamad Al Thani.

Currently, Qatar is the largest global supplier of liquefied natural gas (LNG), alongside Australia, but its production is close to maximum capacity and is tied up in long-term contracts to India and South Korea. So, it cannot supply all the quantities needed.

Furthermore, Qatar wants to see an end to a European Commission antitrust investigation launched four years ago into the way Qatar was selling its long-term contracts to European customers.

There is no question that Saudi Arabia will try to help and is already under strong US pressure to increase its oil production in order to drive down oil prices which have skyrocketed.

Riyadh at the same time must be very careful so as not to harm its relations with Moscow, as Saudi Arabia’s dominance of OPEC is due to its partnership with Russia.

Many analysts are convinced that in the event of a Russian invasion of Ukraine, oil prices will exceed one hundred dollars per barrel, triggering a jump in global gas prices, and rises in a huge range of products where energy is a significant production cost. This will affect people all over the world.

Ukraine is one of the world’s top wheat exporters and the country was known as the breadbasket of Europe. So, a possible disruption in its wheat supplies will heavily affect several Middle Eastern countries, like Egypt which imports about 80 per cent of the wheat it needs from Ukraine, Libya and Lebanon which import about 40 per cent, and Yemen about 20 per cent.

Lebanon and Yemen are already very close to famine, but if war breaks out, all countries in the Middle East are expected to be affected by the inevitable rise in prices. Sharp price increases invariably spark demonstrations in the Middle East, sometimes quite violent, causing political instability.

If the crisis in Ukraine escalates further, a new refugee crisis will be created, and desperately needed humanitarian aid may have to be diverted for example from Yemen to refugees in Europe. The crisis will become even worse due to the skyrocketing prices in energy and agricultural products and there will not be funds available for reconstruction and development.

Now let’s see some of the possible political implications the crisis in Ukraine may have on specific Middle East countries.

A country that is most likely to be affected is Libya, where Russia and the West support different warring factions. The West generally supports the UN’s internationally recognized government in Tripoli, while Russia is on the side of eastern-based General Khalifa Haftar in Tobruk.

Last December the scheduled national elections were called off and now there is a risk that the Russian-backed Khalifa Haftar faction could again form a breakaway government at war with the government in Tripoli, leading to a new round of fighting in the war-torn country.

Due to the situation in Ukraine, it is now highly unlikely that the West and Russia will come together to stabilize the situation in Libya.

Turkey also finds itself in the position of having to choose between the wishes of Moscow or Washington. The US Administration wants Ankara to continue its military supplies, particularly drones, to the government in Kyiv, while Kremlin spokesman has stressed that Turkey’s ongoing arms sales to Ukraine threatened to destabilize the region.

Turkey is unlikely to fully align itself with the West against Russia, given its complicated relationship with Moscow, involving cooperation in some areas and competitive, even adversarial, relations in others.

In the economic field, it relies on Russian natural gas for its industry and on the millions of Russian tourists visiting Turkey who bring much-needed hard currency. In the geostrategic field, they support opposite sides in the war in Syria and Libya.

Other Middle Eastern states will find themselves in the unpleasant position of picking a side. The United Arab Emirates, for example, does not want to alienate Moscow by aligning with the West, but it will be forced in the end to comply with Washington’s wishes.

During the past few years, the relations of several countries in the Middle East with Moscow have improved dramatically, after a perceived decrease in US interest in the region, but now the crisis in Ukraine has changed almost everything, and they cannot ignore Washington’s wishes without paying a price.

Source: ANI

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Highlights of the visit of UAE Minister of Climate Change and Environment Almere to Germany

Mariam bint Mohammed Almheiri, UAE Minister of Climate Change and Environment, wrapped up a four-day visit to Germany, where she discussed opportunities for cooperation between the two countries with high-level government and parliamentary officials and key players from the private sector.

Hafsa Al Ulama, UAE Ambassador to Germany, accompanied the Minister on the trip.

The visit was part of the UAE’s efforts to build synergies with other countries in driving sustainable development and enhancing food security. Focus areas included climate action, clean energy, especially clean hydrogen, smart AgTech, and food trade.

Almheiri leveraged the trip to highlight the UAE’s global climate leadership, economic diversification agenda, and enabling environment for foreign direct investment (FDI).

Almheiri said: "The UAE and Germany share a firm commitment to continuous progress, a passion for innovation, and an eagerness to embrace future trends. The visit offered us an ideal platform to exchange experience and expertise, and explore potential synergies in areas of mutual interest. As a global technology leader, Germany is at the forefront of coming up with innovative solutions to the most pressing challenges the world faces today, and is a valued partner in the UAE’s efforts to shape a better future."

She added: "I would like to thank all the German officials that I met for their warm welcome and hospitality we have received during our trip. I look forward to translating the outcomes of our productive conversations into tangible projects that will help us build sustainable food systems, accelerate the transition to clean energy, fight climate change, and preserve our environment and natural resources for the next generations."

On day one of the visit, the UAE Embassy in Berlin organized an expert discussion under the theme ‘International cooperation to progress on climate action’.

At the event, Almheiri addressed representatives of German government entities and research institutions as well as the private sector, spanning the full spectrum of energy and climate policy. She provided an overview of the UAE Net Zero by 2050 Strategic Initiative that aligns with Germany’s ambition to reach net-zero greenhouse gas (GHG) emissions by 2045, and emphasized the UAE’s keenness for the two countries to exchange lessons learnt in pursuing parallel pathways to climate neutrality.

The first two days, spent in Berlin, also featured a packed agenda of bilateral meetings with German officials. At the UAE Embassy, the Minister met with Oliver Krischer, Parliamentary State Secretary at the German Federal Ministry for Economic Affairs and Climate Action, Dr Ophelia Nick, Parliamentary State Secretary at the German Federal Ministry of Food and Agriculture, and Niels Annen, Parliamentary State Secretary of the German Federal Ministry for Economic Cooperation and Development. Parliamentary state secretaries are members of the German Federal Parliament (Bundestag) that assist ministers with their portfolios.

Furthermore, Almheiri explored ways of strengthening cooperation in advancing the energy transition with Ellen von Zitzewitz, Director of Bilateral Energy Cooperation at the German Federal Ministry for Economic Affairs and Climate Action.

During her visit to the Bundestag, Almheiri toured the premises in the company of Armin Laschet, Member of the Bundestag and former Minister President of the German federal state of North Rhine-Westphalia, and met with several spokespersons of German parliamentary factions. These included Jürgen Trittin, Foreign Policy Spokesperson of The Greens Faction, and Nils Schmid, Foreign Policy Spokesperson of the Social Democratic Party of Germany (SPD) Faction.

In addition, she held two trilateral meetings – the first with Carsten Träger, Spokesperson of the SPD Faction for Environment, Nature Conservation, Nuclear Safety and Consumer Protection, and Dr Nina Scheer, Spokesperson of the SPD Faction for Climate and Energy, and the second with Dr Katja Leikert, Chairwoman of the Christian Democratic Union/Christian Social Union (CDU/CSU) Faction on the Bundestag’s Committee on Family Affairs, Seniors, Women and Youth, and Jürgen Hardt, Foreign Policy Spokesperson of the CDU/CSU Faction.

Almheiri also enjoyed a lively discussion on the UAE and Germany’s shared commitment to environmental protection with Steffi Lemke, Federal Minister for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection. The last meeting on the Berlin leg of the trip was with Renata Alt, Chairwoman of the Bundestag’s Committee on Human Rights and Humanitarian Aid.

On day three, Almheiri met with several officials of the Bavarian State Government in Munich. Among these were Dr Markus Söder, Minister-President of Bavaria, and Roland Weigert, State Secretary for Economic Affairs.

In addition, she delivered introductory remarks at the North Africa Middle East Initiative of German Business (NMI) Executive Roundtable in Munich, where she outlined the main opportunities for cooperation between the UAE and Germany as well as the advantages the UAE offers foreign companies and investors.

The visit culminated in Almheiri's participation in the two-day Munich Security Conference (MSC) in the presence of Olaf Scholz, German Federal Chancellor, Helga Maria Schmid, Secretary General of the Organization for Security and Co-operation in Europe (OSCE), Alok Sharma, President of COP26, and John Kerry, US Special Presidential Envoy for Climate. The world’s largest gathering dedicated to international security policy convened officials of global organizations as well as ministers and representatives of leading companies from around the world.

Almheiri joined Cem Özdemir, German Federal Minister of Food and Agriculture, and Werner Baumann, Chairman of Bayer AG, at the ‘Seed Change Needed: Ensuring Food Security’ townhall to examine ways of eradicating world hunger. She also shared the UAE’s vision for an inclusive COP28 at the ‘Good COPs: Aligning International Climate Diplomacy’ townhall.

On the sidelines of the conference, Almheiri attended the High-level Investors Roundtable at the Angermayer Policy & Innovation Forum, hosted by German serial entrepreneur and investor Christian Angermayer. The event brought together a group of high-profile international investors with political decision makers to discuss geopolitical developments and investment opportunities in an off-record setting. In her introductory statement, the Minister shed light on the UAE’s growing appeal as an investment destination, and invited the audience to benefit from the wealth of FDI opportunities in the country.

During the conference, Almheiri met with Wolfgang Schmidt, German Federal Minister for Special Affairs and Head of the Chancellery, and Omid Nouripour, Co-Chairman of The Greens. In addition, she joined Dr Anna Lührmann, Minister of State for Europe and Climate at the German Federal Foreign Office, and Jennifer Morgan, soon-to-be Special Envoy for International Climate Policy of the German Government, for a dinner discussion under the theme ‘Climate, Peace and Stability: Building a better climate for peace’.

Almheiri also met with Dr Christian Bruch, President and CEO of Siemens Energy, and Oliver Zipse, Chairman of the Board of Management of BMW AG. They discussed the role of the private sector in advancing sustainable development, as well as the significant contributions of the two multinational conglomerates to this goal.

The trip concluded with a meeting with John Kerry and Cindy McCain, Permanent Representative of the US to the UN Agencies in Rome, and a separate meeting with Cem Özdemir.

The UAE and Germany enjoy long-standing strong ties that were taken to new heights with the signing of a joint strategic partnership statement in 2019. In May 2022, the two countries will celebrate the golden jubilee of their diplomatic relations.

The UAE is Germany’s biggest trading partner in the Arab region and the third most important re-exporter of German products in the world. In 2020, total non-oil trade volume between the two countries amounted to US$8.589 billion.

Source: WAM.

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Gold Prices and Real Interest Rates Rise in Tandem, Does Inflation Hedge Works?

Since this year, gold prices swept last year’s decline, showing a strong upward market, and the prices after 8 months once again exceeded the round number mark of $ 1900. Gold prices in the past have been rendered inverse relationship with the real interest rate movements, which seems to be invalid. In the continued upward pressure of high inflation, why gold didn’t rise last year, but this year reversed it?

Inflation Is More Persistent, and Interest Rate Hikes Pose Recession Risk

As global inflation soared amid supply chain strains and U.S. inflation reached a 40-year high at the end of last year, gold prices, regarded as a hedge against inflation, remained stagnant, falling 3.3% in 2021.

The reason is that the real interest rate has been dominating the trend of gold. The Federal Reserve and the European Central Bank and other major central banks first have maintained that “inflation is temporary”, and then in the rising inflationary pressure, the Fed policy tendency began to turn from doves to hawks, no longer adhere to the “temporary theory of inflation”. But at high inflation data, interest rate hikes are expected to further increase. Worries about rising real interest rates have been weighing on gold.

In January this year, the U.S. CPI again exceeded expectations by 7.5%, driven by rising energy, food, and rent prices, which continued to hit a new high in 40 years. Many signs indicate that even if the supply chain problems are alleviated next, high inflation levels will continue for a long time. Last year the market believes that the Fed can control inflation, but the fact is that the Fed has failed to curb inflation upward and has been very slow to act on it.

Gold Prices and Real Interest Rates Rise in Tandem, Does Inflation Hedge Works?_1

From the current market reaction, gold has fully adapted to the anticipation of the Fed’s rate hike. In March with the Fed raising interest rates 50 basis points of the increasing probability and the flattening of the yield curve, the Fed’s move to aggressively extinguish inflation could have a greater adverse impact than inflation itself, and aggressive rate hikes could lead to the risk of a recession in the U.S. The Fed, in turn, will ease again at some point. Hedging inflation has taken over recently, which is why the impact of US real interest rates on gold has weakened and even seen a simultaneous rise. The reasoning for gold’s rise has changed from hedging inflation expectations to hedging real inflation.

Gold Prices and Real Interest Rates Rise in Tandem, Does Inflation Hedge Works?_2

The Dollar Is Weak, and Gold Retains Its Value

It is because of the market speculation that the Fed was forced to accelerate the tightening process, a single rate hike in March may be as high as 50BP in size, making fears of the economy falling into recession intensify. In the context of rising expectations of the Fed rate hikes, the dollar index since the beginning of the year appears a bit weak.

Review the history of the first two rounds of the Fed rate hike cycle, the dollar fell. This cycle of interest rate hikes is approaching and the trend of the dollar is still weak, which also supports gold to a certain extent. In addition, once the dollar weakens, the profitability of capital will also drive capital flow to gold and other preservation assets, thus boosting gold upward.

Gold Prices and Real Interest Rates Rise in Tandem, Does Inflation Hedge Works?_3

Geopolitical Crisis Supports Gold’s Risk Aversion

Risk aversion is the key factor in gold’s recent surge, even more than the impact of anti-inflation. The recent situation in Ukraine has become the core of global geopolitical events and the focus of the market. Concerns about the outbreak of war between Russia and Ukraine continue to grow. The news of “war or no war” in relevant countries continues to ignite the risk aversion in the market, which amplifies the risk aversion of gold and makes it possibly easier to rise than to fall.

However, no matter what impact rising gold, the influence of geopolitical risk is temporary and will eventually cool down and dissipate. In addition, once U.S. inflation is under control, gold prices are likely to fall sharply. Then gold may return to the main reasoning driven by real interest rates, and gold price fluctuations and real interest rates will also re-present the inverse relationship.

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Israel to open to unvaccinated tourists starting March 1

Prime Minister Naftali Bennett and Health Minister Nitzan Horowitz announced Sunday a plan to ease certain COVID restrictions on travel and education, set to come into effect on March 1.

Under the new guidelines, both vaccinated and unvaccinated tourists of all ages will be allowed into the country, as long as they submit a negative PCR test before boarding the flight and take another one after landing in Israel.

Israeli citizens returning to Israel will not have to take a pre-flight test, but only a PCR upon landing.

Unvaccinated Israelis will not have to quarantine after their return to Israel as long as they test negative upon landing.

The announcement came after the Health Ministry last week recommended easing COVID-19 restrictions as the fifth wave of infections fueled by the Omicron variant continues to recede.

Under the new regulations, mandatory home COVID tests for Israeli schoolchildren will be canceled as well — for middle schoolers on Thursday and elementary school students on March 10. Israel to open to unvaccinated tourists starting March 1_1

Israel to open to unvaccinated tourists starting March 1_1

“We are seeing a steady decline in the morbidity data; therefore, this is the time to gradually open what we were the first in the world to close,” Bennett said after a meeting on the matter Sunday with Horowitz and Tourism Minister Yoel Razvozov.

“Our indicators must be in sync with the situation on the ground. What we are telling the public must be in sync with what is expected of it,” he said. “In order to maintain the public’s trust and be certain that the citizens of Israel are implementing the directives and the government’s decision, we must open up as the situation improves – and it is improving significantly.”

“At the moment, the situation in Israel is good… At the same time, we will continue to closely monitor the situation and in the event of a new variant, we will again act quickly,” Bennett added.

The Health Ministry had originally recommended only allowing unvaccinated tourists under the age of 12 to enter the country, and only if they are accompanied by vaccinated parents.

However, Razvozov strongly opposed the proposal, demanding that all unvaccinated children under the age of 18 be allowed in, citing tourism-related considerations.

Israel to open to unvaccinated tourists starting March 1_2

Minister of Diaspora Affairs Nachman Shai hailed the government’s decision, saying it was a boon to the people around the world who have struggled to visit the country during the coronavirus pandemic.

“I am happy that the prime minister has responded positively to the requests of thousands of families around the world, Jews and non-Jews alike, who have sought to meet up once again after a long period of separation caused in part by restrictions such as the ban on entry for unvaccinated children,” Shai said.

“After two years of the Covid-19 pandemic the time has come to return to a more normal reality and to live alongside this virus, along with appropriate measures to preserve public health. The opening of Israel’s skies is great news for anyone with family in Israel who can now come and celebrate Passover and Purim together here in Israel. We’re waiting for you!” he said in a statement Sunday.

Israel’s complete closing of its borders to non-citizens at the time was harshly criticized by Jewish leaders around the world, who argued that as the nation-state of the Jewish people and the home to roughly half the world’s Jewish population, the country had a responsibility to keep itself open to Jewish visitors.

Addressing those criticisms at a conference on the Israel-Diaspora relationship in Jerusalem last week, Shai said that while the country made extensive efforts to explain its thought process in closing the borders he “wasn’t sure those explanations were accepted” by Jewish communities abroad.

Health Ministry figures on Sunday showed that there were 10,354 new virus cases diagnosed the day before, the lowest daily caseload since 6,615 on January 2. The number of people diagnosed tends to be lower on weekends due to a reduction in the number of tests carried out.

Although there was a slight rise in the number of seriously ill patients, reaching 832 on Sunday morning, overall there was a reduction in the number of people who were hospitalized — 1,803, down from 1,918 the day before.

Over the past seven days, 575 people became seriously ill with COVID-19, a drop of 36 percent from the week before that, according to the ministry.

With the deaths of seven more people on Saturday, the toll since the start of the pandemic in early 2020 rose to 9,841.

A senior Health Ministry official told the Kan public broadcaster that if the fall in cases continues, it is likely a decision will be made to cancel the requirement for wearing face masks in indoor public spaces before the Passover festival in April.

The official said such a move, which would revoke one of the last remaining significant virus rules, would totally depend on a continued downward trend in infections until then.

The unnamed official said that due to the large numbers infected during the Omicron wave and data showing that infection with the variant may offer future protection against similar strains, there could be a relatively long stretch before the rise of a future wave of infections.

However, he noted that any variant that is significantly different from Omicron could set off its own infection spike.

Last week, ministers agreed they would not extend the Green Pass system beyond March 1. The certification grants entry to some public venues to those who are vaccinated, have recovered from COVID-19, or have recently tested negative for the virus.