By Marc Jones

LONDON – Investors had hoped 2022 would be the year when the market recovery from COVID-19 finally got cemented and life started to feel a little more normal. Boy were they wrong.

Russia’s invasion of Ukraine combined with supercharged global inflation have ignited talk of new geopolitical and economic world orders, setting some staggering milestones in the process.

A $10 trillion wipeout in world stocks followed by a $9 trillion recovery; a rout in bond markets; what is shaping up to be the strongest commodities rally since World War I; and the fastest rise in global interest rates in decades.

Add to that the world’s largest country being gouged out the global financial system, the biggest sovereign credit rating downgrade ever seen and pastings for Japan’s yen and Chinese stocks and the full picture becomes clear.

“It has been one of the most extraordinary quarters I can remember,” said Close Brothers Asset Management’s Chief Investment Officer Robert Alster. “…We all didn’t believe that Russia was going to invade Ukraine.”

However, the shocks far earlier than that, he noted. Investors suddenly grasped that the new Omicron COVID strain wasn’t going to shutter the global economy, and that the world’s most influential central bank, the U.S. Federal Reserve, was now serious about jacking up interest rates.

The main driver of global borrowing costs, the 10-year Treasury yield, leapt from under 1.5% to 1.8%, knocking 5% off MSCI’s world stocks index in January alone.

Fast forward to now and that yield is at 2.4%, and two-year U.S. yields have seen their biggest quarterly surge since 1981. More than 200 basis points of Fed interest rate rises are also now expected this year which, if realised, would be the most in a calendar year since 1994.

The top global stock markets will end March higher, but they are all set to record their worst quarter since the coronavirus pandemic first wreaked havoc in 2020.

Those seismic shifts have come as oil and gas prices have raced up 40%.

Added to the 57% surge in nickel and a 31% jump in wheat prices, which have both been driven higher by the Ukraine war, and BofA’s analysts estimate commodities are on course for their best year since 1915.

That “special military operation’, as Moscow terms it, has seen Russia hit with unprecedented Western sanctions and led to some of the world’s biggest investment funds talking about a new world order.

Russian companies that had shares listed in London and New York have had them removed, the rouble can’t be freely traded anymore and the country’s government and corporate bonds have been all been ejected from the major investment indexes.

President Vladimir Putin has retaliated by saying “unfriendly” places like Europe, where Germany gets more than half its gas from Russia, will have to start paying for the stuff in roubles.

EM ROLLERCOASTER

A broader spillover has sent waves through emerging markets, ripping into vulnerable ones but boosting others.

Egypt, which proportionally imports more wheat than any other country, has been forced to devalue its currency 15% and ask the IMF for help, as have Tunisia and a long-resistant Sri Lanka.

Emerging market debt is having the second worst quarter on record, down nearly 10% on a total return basis, with only the 13.3% COVID-induced plunge of the first quarter of 2020 registering worse.

Commodities heavyweights such as Brazil and South Africa meanwhile have the best performing currencies in the world, up 17% and 10% respectively since the start of the year, and Australia’s dollar is top out of the advanced economies.

“This is a tectonic shift from a geopolitical point of view,” Amundi’s Head of Multi-Asset strategies, Francesco Sandrini, said.

“No one could have imagined that an entire new world order of energy should have been considered.” he added. “Perhaps we are talking about literally the unwinding of globalisation.”

YIELD CURVE ALERT

This week has also seen a dreaded – albeit brief – “inversion” of a key bit of the U.S. bond yield curve that has been a precursor of economic recessions.

It is the first time that has happened since 2019, while the broader rise in global yields means that the $18 trillion pile of negative-yielding bonds that existed a few years ago – where investors paid for the privilege of lending – is now almost gone.

There has also been a 9% drop in Japan’s ‘safe-haven’ yen versus the dollar this month, the biggest plunge by a G10 currency since the pound’s Brexit beating of 2016.

The yen’s slightly smaller 6% quarterly fall and a 2% drop by the euro means the dollar will score its third straight quarterly rise against its major peers, although it is actually down against emerging market units despite the anxiety caused by events in Ukraine.

The rouble lost nearly half its value in the immediate aftermath of the Ukraine invasion, but tight capital controls and central bank interventions since have left it down a more manageable 15% for the year.

Morgan Stanley’s veteran Head of Asia Macro Strategy, Min Dai, has been left dazed by it all. “For someone who has been following EM for most of my career, what happened in the past month is beyond belief,” he said.

(Additional reporting by Saikat Chatterjee and Dhara Ranasinghe in London)

By Joseph Nasr and Vera Eckert

BERLIN/FRANKFURT -Germany triggered an emergency plan to manage gas supplies on Wednesday that could see Europe’s largest economy ration power if a standoff over a Russian demand to pay for fuel with roubles disrupts or halts supplies.

Moscow’s insistence on rouble payments for the Russian gas that meets a third of Europe’s annual energy needs has galvanised others in Europe: Greece called an emergency meeting of suppliers, the Dutch government said it would urge consumers to use less gas and the French energy regulator told consumers not to panic.

The demand for roubles, which has been rejected by Group of Seven nations, is in retaliation for crippling Western sanctions on Russia following its invasion of Ukraine.

Moscow, which says it is conducting a “special military operation” there, calls Western measures an “economic war”.

Russia’s most senior lawmaker said on Wednesday Russia could demand rouble payments also for other commodities including oil, grain, fertilisers, coal and metals, raising the risk of recession in Europe and the United States.

Moscow is expected to make public its plans for rouble payments on Thursday, although it said it would not immediately demand that buyers pay for gas exports in the currency.

Russian President Vladimir Putin and German Chancellor Olaf Scholz have agreed in a call that experts from their countries would discuss how payment for Russian gas exports could be made in roubles, the TASS news agency reported.

Separately, Putin outlined the rouble plan in a phone call with Italian Prime Minister Mario Draghi, Draghi’s office said.

Two Russian sources told Reuters as one of the options for the switch, Russia planned to keep contract prices for gas exported to “unfriendly” countries but demand the payment to be done in the rouble equivalent on a pre-agreed settlement day.

Western countries have said payment in roubles would breach contracts that can take months or more to renegotiate, a prospect that has driven commodity prices higher.

It would also blunt the impact of Western curbs on Moscow’s access to its foreign exchange reserves and bolster its currency.

The European Union is preparing more sanctions against the Kremlin, EU sources told Reuters on Wednesday, with their scope depending on Moscow’s stance on gas payments in roubles.

INDUSTRY FIRST IN LINE FOR CUTS

Berlin’s unprecedented move is the clearest sign yet that the European Union is preparing for Moscow to cut gas supplies unless it gets payment in roubles. Italy and Latvia have already activated warnings.

German Economy Minister Robert Habeck implemented the “early warning phase” of an existing gas emergency plan, where a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

Habeck told reporters Germany’s gas supplies were guaranteed for now but urged consumers and companies to reduce consumption, saying that “every kilowatt hour counts”.

If supplies fall short, Germany’s network regulator can ration gas, with industry first in line for cuts and preferential treatment for private households, hospitals and other critical institutions.

Even without the threat of gas shortages, Germany could face recession as climbing energy costs have already forced companies, including makers of steel and chemicals, to curtail production.

German industry association BDI on Wednesday asked for government support, including loans and state participations, to prevent firms from going bust, while government’s economic advisers slashed this year’s growth forecast because of the Ukraine crisis. {nL2N2VX1PL]

Half of Germany’s 41.5 million households use natural gas for heating while industry account for roughly a third of national demand. Russia is Germany’s top gas supplier, accounting for 40% of imports in the first quarter of 2022. Berlin has pledged to end its energy dependency on Moscow but it will not achieve that before mid-2024, according to Habeck.

Europe faced an energy crunch even before Russian troops entered Ukraine on Feb. 24, with European Union gas storage levels at about 26% of total capacity, below normal levels at this time of year.

The European Commission, which said on Wednesday it would work closely with member states to prepare for any gas shortages, has proposed legislation requiring countries to fill levels to at least 80% by November but that would be almost impossible without Russian supplies.

The 80% target would not apply if the European Commission declared an EU-wide or regional gas supply emergency – which it can do if at least two countries declare an emergency first.

‘EVERYTHING WILL BE FINE’

Jean-François Carenco, head of the energy regulator in France, far less dependent on Russian gas than Germany, thanks to gas and liquefied natural gas sourced elsewhere and its reliance on nuclear power plants, r power generation, said the country should not encounter any supply issues.

“Everything will be fine, the gas storage facilities are well filled, we’ll make it through the winter,” he told BFM TV.

Greece was set to hold an emergency meeting of its energy regulator, gas transmission operator and its biggest gas and power suppliers on Wednesday to assess its supply security in case Russia stops supplies.

The Dutch government said it would launch a campaign to get consumers to use less gas.

Investors are watching to see how the dispute over Russia’s insistence on rouble payments plays out as consumers in Europe grapple with energy prices that have forced governments to announce fiscal relief measures.

This month has been the most expensive month for power prices in European history, although markets are set to end the month at lower levels than at the start of March.

After Germany’s announcement, German year-ahead wholesale electricity set a three-week high of 185 euros per megawatt hour, up 6.3%..

Kerstin Andreae, head of the Federal Association of the Energy and Water Industry (BDEW), said Germany should have clear plans for how the government would deal with a gas delivery stoppage that forced rationing.

“We must now take concrete measures to prepare for the emergency level, because in case of a stoppage things would have to move fast,” Andreae said.

(Additional reporting by Holger Hansen and Rene Wagner in Berlin, Dominique Vidalon and Benoit Van Overstraeten in Paris, Nina Chestney in London, Angeliki Koutantou in Athens and Christoph Steitz in Frankfurt; Editing by Carmel Crimmins, Barbara Lewis and Tomasz Janowski)

By Arunima Kumar

(Reuters) -Trulieve Cannabis Corp reported a 24% rise in fourth-quarter adjusted core profit on Wednesday, helped by strong demand for pot and related products.

Trulieve’s shares were up 2.3% at C$26.48.

The results come as the sector has drawn renewed investor interest with a cannabis decriminalization bill heading for vote in the U.S. House of Representatives this week.

“Certainly, we would all like to see federal change and certainly the American people are supportive,” Chief Executive Officer Kim Rivers told Reuters.

However, she added that the industry has not been driven by the requirement for a federal change.

“This is a state-by-state operation and what’s happening at the state level, is, at this juncture more impactful on our businesses as well as on people’s access to cannabis than what is happening at the federal level,” Rivers added.

Trulieve, which operates in 11 states including Arizona, Florida, and Pennsylvania, said fourth-quarter revenue surged 81% to $305.3 million also boosted by its $2.1 billion acquisition of medical pot producer Harvest Health.

The company said it expects full-year 2022 revenue to be in the range of $1.3 billion to $1.4 billion, and adjusted core earnings in the range of $450 million to $500 million.

U.S. cannabis sales, which boomed during pandemic-led lockdowns, is forecast to reach $46 billion by 2026, according to industry research firm BDSA, as states like New York and New Jersey open up.

Still, margins and profits remain thin, triggering calls from investors and analysts for consolidation to improve profitability by finding savings in scale.

Trulieve Cannabis posted a loss of $71.5 million for the quarter ended Dec. 31, compared to a year-ago profit of $3 million.

The company took $73.3 million of non-recurring fair value of inventory step up, and acquisition charges primarily associated with the Harvest buy.

(Reporting by Arunima Kumar in Bengaluru; Editing by Sriraj Kalluvila and Maju Samuel)

(Corrects name of CFO to Peter Juhas in paragraph 4 and paragraph 9)

By Conor Humphries and Tim Hepher

DUBLIN -The world’s top aircraft lessor AerCap has submitted a $3.5 billion insurance claim for more than 100 jets stuck in Russia following its invasion of Ukraine, setting the stage for a lengthy legal wrangle between lessors and insurers.

Dublin-based AerCap had the largest exposure of any lessor when European Union sanctions forced the termination of Russian leases, accounting for 5% of its fleet by value.

Not only is its insurance claim expected to be the biggest among lessors seeking compensation for the hundreds of planes worth a total of up to $10 billion which remain in Russia, it is also one of the largest single claims ever submitted.

“Last week we submitted an insurance claim for approximately $3.5 billion with respect to our aircraft and engines remaining in Russia,” Chief Financial Officer Peter Juhas told investors following the publication of financial results for the final three months of 2021.

“In this case we expect them to be contested, just given the large sums involved across the industry,” he added.

Lessors had until Monday to wind up current rental contracts in Russia under sanctions imposed by the European Union.

Analysts have said that the unprecedented nature and scale of the potential losses will likely mean years of litigation between lessors and insurers before any decisions on payouts are taken.

One industry executive predicted an “ugly battle” between the leasing and insurance companies.

AerCap said it may book an impairment in the first quarter of its financial year but it had not yet determined how big that might be. Juhas estimated AerCap’s net Russia exposure at around $2.5 billion.

AerCap had 135 aircraft and 14 engines on lease to Russia but has repossessed and removed 22 aircraft and three engines, it said in financial results for the fourth quarter of the year.

Its shares were 4% lower at 1415 GMT, and down 18% since the start of the year.

AerCap, by far the largest aircraft lessor in the world after its acquisition last year of rival GECAS, had 3,701 aircraft, engines and helicopters on its books at the end of December, it said.

(Writing by Conor Humphries; Additional reporting by Tim Hepher and Carolyn Cohn; editing by Elaine Hardcastle, Kirsten Donovan)