| | | | | | | | | | | Axios Markets | | By Matt Phillips and Emily Peck ·Mar 08, 2022 | | 📉 Ooof. Yesterday was a no-good, very bad day for stocks with the S&P 500 down nearly 3%. - "Fear is palpable," Cliff Hodge, chief investment officer for Cornerstone Wealth, said in a note.
Let us hope for better today. Meantime, let's talk bread and nickel prices, plus Russian real estate. Today's newsletter is 1,024 words, 4 minutes. | | | | | | 1 big thing: 🌾 Wheat surge to seed more suffering |  Data: Chicago Board of Trade, FactSet; Chart: Axios Visuals Russia's invasion means bread prices will soar in some of the world's poorest, most fragile countries, potentially igniting a cycle of instability, Matt writes. Driving the news: Wheat prices shot to a record $12.94 per bushel, and are up an astonishing 70% over the last month, as measured by a type of futures contract on the Chicago Board of Trade. Why it matters: Throughout history, surging bread costs — see the French and Russian Revolutions — have been a major source of instability and violence. - More recently, soaring food costs, including wheat, have been cited as an important contributor to the wave of instability known as the Arab Spring that swept the Middle East starting in 2011. (Google Scholar)
The big picture: Both Russia and Ukraine are superpowers of the wheat world. - Russia produces 11% of the world's wheat and is its largest exporter. The two countries together export more than a quarter of the world's supply.
State of play: Russian and Ukrainian wheat is cheap. They sell it to some of the world's poorest countries in the Middle East and North Africa. - Egypt — the world's largest wheat importer — gets roughly 60% of its wheat from Russia and 25% from Ukraine, JPMorgan analysts wrote in a research note last week.
- Ethiopia has become a major importer in recent years as well, as war disrupted farming. The government bought wheat in bulk to provide subsidized food to the population. But now "the government cannot afford to purchase enough wheat to satisfy domestic demand," USDA analysts wrote last month.
- The surge in prices forced Lebanon to cut subsidies to prevent burning through national currency reserves. "This could exacerbate Lebanon's social challenges," as the country only holds a month's worth of wheat in reserve, according to analysts at Fitch Ratings.
The bottom line: Besides inflicting suffering on the people of Ukraine, Russia's invasion will also spread misery worldwide. |     | | | | | | 2. Catch up quick | | 🏦 Treasury warns U.S. banks to be on high alert for sanctions evasion. (FT) 💵 During wars people like buying Treasury bonds. (WSJ) 🦠 COVID can cause brain damage, per U.K. study. (Axios) | | | | | | | | 3. Early signs of Russian pullback in real estate |  | | | Illustration: Annelise Capossela/Axios | | | | "Any Russian who wanted to come here isn't going to come," said Liz Elliott, a real estate agent with Echo Fine Properties in Martin County, Florida, just north of Palm Beach. Already, a Russian client backed out of a deal she'd been working on, she told Emily. Why it matters: Observers of the U.S. real estate market are watching to see how all the new economic sanctions — on oligarchs, but also on financial transactions involving money from Russian banks — will impact sales. - More broadly, the early signals of skittishness show how the impact of sanctions could spread to parts of the global markets that are typically supported by Russians living or visiting.
State of play: South Florida and Manhattan have long been popular destinations for Russian cash — of the legit and not-so-legit sort. - "The heat is up. They're scared that they're going to have their real estate seized or potentially seized," Manhattan real estate doyenne Dolly Lenz told Fortune.
- Ultrawealthy Russians are calling her now, looking to sell or cancel upcoming deals, she said.
Elliott's clients are "wealthy. Not ultrawealthy," she said. They're Russian citizens looking at homes priced between $250,000 and $1 million in a gated golf course community in Palm City. "That's a bit of 💰," she texted last night. Worth noting: Oligarch real estate gets a lot of attention, but it's a very small part of the Manhattan market, said Jonathan Miller, a prominent real estate consultant at Miller Samuel based in New York. - With real estate booming and supply still tight, less Russian cash is unlikely to materially impact prices in New York or Florida, he added.
Yes, but: No one actually knows how much Russian-owned real estate is out there. Until very recently, it's been pretty easy to buy houses, penthouses and even factories in the U.S. secretly, said Gary Kalman, director of Transparency International. What to watch: Regulations that would require more transparency in the real estate market are still being finalized, Kalman said. "It's going to be a while." | | | | | | | | A message from Axios | | Smart, brief writing will transform your internal comms | | |  | | | | Join us of March 10 to learn the methodology of Axios' Smart Brevity® style and specific techniques you can use in your own communications. You'll learn about: - The research behind Smart Brevity
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Sign up | | | | | | 4. 🔋 Nickel prices explode |  Data: FactSet; Chart: Axios Visuals Wheat isn't the only commodity seeing previously unthinkable price moves, Matt writes. - The price on the London Metal Exchange closed yesterday up 44%, at nearly $43,000 per metric ton.
- Early today, the price spiked to more than $100,000, before the London Metal Exchange stepped in to halt trading.
The big picture: Nickel is a key ingredient in the stainless steel and batteries that wind up in electric vehicles. - Russia commodities giant Norilsk Nickel is the single largest producer. The surge in prices for the metal highlights how the Russia shock will keep the pressure on a global manufacturing system that was already struggling to recover from the pandemic.
What we're watching: Price spikes like this typically suggest a trading firm is incredibly desperate to get its hand on the metal to close out a "short" trade that's gone horribly wrong. Bloomberg reports that it could be a major Chinese stainless steel producer. | | | | |  | | | | If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. | | | | | | | | 5. 📉 Nasdaq bear market |  Data: FactSet; Chart: Axios Visuals The tech-heavy Nasdaq composite fell into bear market territory after a 3.6% tumble yesterday, Matt writes. - A bear market is Wall Street's term for a 20% decline from a recent high. It's a more acute market slump than a "correction," which is a fall of 10% or more.
- But spiritually the onset of a bear market is much more. It marks a sharp shift in the mood music of the markets. The dour, the sour and the short-sellers of the world see their worldview validated by the market's inability to rally.
The big picture: So far, the Nasdaq composite has suffered a worse beating than the broader S&P 500, which is only down 12.4% from its Jan. 3 high. - That's probably because the tech stocks that drive the performance of the Nasdaq tend to be especially sensitive to rising interest rates, which we've had in recent months.
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