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This is an audio transcript of the FT News Briefing podcast episode: War in Ukraine shocks markets

Marc Filippino
Hey, guys, Marc here. The situation in Ukraine is still moving very fast. Please keep in mind that things may have changed by the time you listen to today’s podcast. Good morning from the Financial Times. Today is Friday, February 25th, and this is your FT News Briefing.

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Russian tanks and armoured vehicles stormed Ukraine from three separate fronts yesterday. Reports say the city of Kyiv is on the verge of falling to Russian forces, and the UK wants to punish Russia by removing it from a major payment system. Plus, the war in Ukraine is shaking global markets. The FT’s Katie Martin puts it in perspective.

Katie Martin
Everybody that I’ve spoken today is completely blindsided and depressed and honestly feels a little bit icky talking about markets when there are much more important things going on.

Marc Filippino
I’m Marc Filippino. And here’s the news you need to start your day.

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(Sound of explosions in the background)
Ukrainians woke to explosions yesterday as peace in Europe was shattered. Hours earlier on Thursday, President Vladimir Putin ordered Russia’s military to invade Ukraine from the north, south and eastern borders. Western powers were quick to condemn Russia. French president Emmanuel Macron held a call with Putin yesterday and demanded he stop Russia’s military actions. And Western countries continue to place sanctions on Russia. President Joe Biden announced he was cutting off Russia’s biggest lender from the US financial system. Meanwhile, the European Union is preparing a far-reaching package of sanctions. They would freeze some transactions with Russian banks, ban some state-owned companies from listing on EU stock exchanges and stop Russian nationals from making large deposits in EU institutions. But still, it seems Russia could capture Ukraine’s capital soon. A senior western official told the Financial Times it won’t be long until Russia assembles overwhelming military forces around Kyiv, a city of nearly three million people.

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UK prime minister Boris Johnson wants to punish Russia by ejecting it from an international payment system. Swift is a Belgium co-operative that’s used by more than 11,000 banks and financial institutions around the world. It essentially keeps track of trillions of dollars worth of transactions every day. Russia accounted for about one and a half per cent of the transactions on the Swift system in 2020.

Stephen Morris
This is incredibly important for any country or company or especially bank, to be part of the international financial system.

Marc Filippino
That’s our banking editor, Stephen Morris. He says that while Johnson is leading the charge to ban Russia from Swift, the British prime minister is having a hard time getting other countries on board.

Stephen Morris
Germany, the EU and even the US is still undecided on whether to impose the Swift ban, but essentially they’re worried about reciprocal damage to their economies and their financial institutions. European Union relies on Russia for a huge amount of its natural gas and oil supply and pays for that using the Swift system. There could be ways found around Russia not being able to participate, but they would be very difficult. So really, they’re just thinking here about what the knock-on damage would be to their countries and their financial systems.

Marc Filippino
So Stephen, what does Swift have to say about all this?

Stephen Morris
Well, of course, Swift has found itself in an incredibly difficult and delicate position. I spoke to somebody earlier with knowledge of their operations, and they said it’s a very delicate balancing act. But at the moment, they’re just staying quiet, trying to keep their heads down and not attract any more attention than they have already. But in a way, I suppose it reinforces the importance of Swift to the cross-border banking system in the sense that, you know, taking out one country from it could have such severe repercussions on its economy.

Marc Filippino
And how does Swift play into this? And can the UK convince other countries to get on board with removing Russia from the payment system?

Stephen Morris
Well, Swift played a large role in helping exclude Iran from the financial system when there were sanctions on the country a while ago, but it would need to be combined with direct sanctions on some of the largest financial institutions, corporates and most powerful people in Russia as well. Otherwise, in and of itself, a Swift ban wouldn’t apply the amount of pressure desired by Western governments. We have already seen that the UK has imposed direct sanctions on VTB, the second-largest bank in Russia, freezing its assets in this country, as well as preventing debt being raised. So there are a variety of other measures of which Swift is one. But at the moment, considering there’s been so much debate between the countries, it looks like at least in the short term, we’re not gonna get a co-ordinated international decision to ban Swift, and just one country going alone is not enough to cut it. You need to be co-ordinated.

Marc Filippino
Stephen Morris is the FT’s banking editor.

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The war in Ukraine is wreaking havoc on commodities. On Thursday, Brent crude oil burst above $105 a barrel for the first time since 2014. And European gas contracts jumped as much as 70 per cent after Russia invaded Ukraine. Russian and European equities had a horrible day, while US stocks were up a healthy amount. To digest this and other market movements, I’m joined by Katie Martin, our markets editor. Hi, Katie.

Katie Martin
Hey, how are you going?

Marc Filippino
I’m doing OK. Katie, how would you describe the mood in markets yesterday?

Katie Martin
It’s utterly grim. I mean, everybody that I’ve spoken today is completely blindsided and depressed and honestly feels a little bit icky talking about markets when there are much more important things going on, in a way, you know. Everyone is totally shocked by the scenes that we’re seeing on television screens from Ukraine, you know. Nonetheless, people who look after our savings and investments and pensions and all the rest of it are paid to look after our money and they have to think about what the economic and market ramifications are. And at the moment they’re really not, not pretty at all. It’s very clear this was a very big shock to fund managers.

Marc Filippino
Yeah, I wanna thank you for making that point about the seriousness of this war. That’s a really important perspective to keep right now. So Katie, there’s a lot going on in the global markets. What are investors looking for?

Katie Martin
What really matters to global investors is what happens to commodities prices and to major stock markets. So the upshot for global markets and for US markets is basically this, right? It’s that this pushes commodities prices which have already been on a, you know, rip higher, it pushes them even higher. It makes the outlook for inflation even uglier. So we’ve already got inflation running at seven and a half per cent in the US. All things being equal, this pushes inflation still higher. And so this makes life very difficult for central bankers, right? On the one hand, they don’t want to raise interest rates into an environment where there’s literally war in Europe. On the other hand, to the extent that this is super inflationary, they can’t afford to sit back and allow an inflation spiral that’s already gone well beyond most people’s comfort zone. What this probably means is that the Fed, for example, there’s been some talk that it might raise interest rates by half a percentage point in March. That feels incredibly unlikely now, but maybe they do still stick with a quarter of a percentage point, which is the normal increment that they move by.

Marc Filippino
Yeah, and that potentially softer touch by the Fed on interest rates, it seemed to have affected US stocks because the Nasdaq finished Thursday up three and a third per cent. Katie, we saw a lot of investors rush into cash yesterday. How come?

Katie Martin
It’s just all the classic bolt holes, you know. There’s quite a certain amount of muscle memory in global markets where, when the going gets tough, it’s gold, it’s Swiss franc, it’s Japanese yen, it’s the dollar, it’s US Treasuries. I tell you what is not, is bitcoin. So the idea that cryptocurrencies are some sort of geopolitical haven or that they’re an inflation hedge, that narrative has been rather challenged over the past few days. But yeah, it’s just a bolt to safety.

Marc Filippino
Katie Martin is the FT’s markets editor. Thanks, Katie.

Katie Martin
Pleasure.

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Marc Filippino
And before we go, our Moscow bureau chief Max Seddon and other experts will be hosting a free webinar on the Russia-Ukraine conflict today. FT subscribers can tune in today at 1pm London, 8:00 in the morning New York. You can sign up at FT.com/Ukrainewebinar. Again, that’s FT.com/Ukrainewebinar. We’ll also have a link in the show notes.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Eli Meixler, Joanna Kao, George Drake Jr, David Dasilva, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.

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