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Ukraine Latest: Russia May Dodge Deep Fall; US and China to Talk

·10 min read

(Bloomberg) -- Russia appears on track for a much shallower recession than many forecasters initially expected due to rising oil production that has blunted the impact of US and European sanctions over its war in Ukraine.

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US Secretary of State Antony Blinken plans a candid discussion about the war with his Chinese counterpart during an upcoming summit in Bali. A top Biden administration official earlier urged Beijing to stop spreading Russian “lies” about the Kremlin’s invasion of its neighbor.

Blinken has no plans to meet Russian Foreign Minister Sergei Lavrov during the Group of 20 ministerial gathering in Bali this week. President Joe Biden has called for Russia to be removed from the G-20 over the invasion and diplomats have previously walked out of a Lavrov speech in protest of the Kremlin’s war.

(See RSAN on the Bloomberg Terminal for the Russian Sanctions Dashboard.)

Key Developments

  • Russia’s War-Weary Tech Talent Floods Into Neighboring Georgia

  • Russia Dodges Worst Recession Fears as Oil Eases Sanctions Pain

  • Natural Gas Soars 700%, Becoming Driving Force in New Cold War

  • Turkey Renews Threat to Veto Sweden and Finland’s NATO Bids

  • Blinken Plans ‘Candid Exchange’ With China’s Wang on Ukraine War

  • Biden Receives Plea from WNBA Star Griner on Release From Russia

On the Ground

With Lysychansk under its control, Russia is switching its focus farther west into Donetsk, intensifying shelling of the region, according to Ukrainian officials. Fighting continues on the Bakhmut axis, which has emerged as a new flashpoint. Ukrainian forces repelled a Russian assault close to Slovyansk, the Ukrainian General Staff said, with the city’s mayor urging residents to evacuate as the front line moves closer. Russia fired seven missiles further west toward Dnipropetrovsk overnight, six of which were shot down by Ukrainian forces, Valentyn Reznichenko, the head of the regional government, said on his Telegram account.

(All times CET)

Russia Dodges Worst Recession Fears (6:00 a.m.)

Economists from JPMorgan Chase & Co., Citigroup Inc. and other big banks are slashing their outlooks for the drop in output this year to as little as 3.5%, dismissing fears in the first months after Putin’s invasion that it could be the deepest in a generation.

The improving outlook is adding to Kremlin confidence that it can weather the sanctions onslaught from the US and its allies even as leaders in those countries face increasing pressure from surging energy and food prices -- trends the war has worsened.

Officials in Moscow, some of whom saw a contraction of as much as 12%, are now preparing to improve forecasts to less than half that. To be sure, Russia’s economy is still facing the sharpest contraction since at least 2009.

Russia’s War-Weary Tech Talent Floods Into Georgia (6:00 a.m.)

Georgia’s government estimates that 80,000 Russians, Belarusians and Ukrainians now reside in this small Caucasus nation of 4 million. Of those, 20,000-25,000 work in IT and software, and about 30,000 are Russian citizens who arrived since the war began. Many came recently from Belarus and Ukraine, too.

As IT specialists, they see little future in Russia as the security services tighten control of the internet, international sanctions squeeze the economy and foreign companies exit. The exodus comes as Russian tech companies including internet giant Yandex NV struggle amid deepening censorship, shortages of key equipment, and a backlash in foreign markets.

Read more: Russia’s War-Weary Tech Talent Floods Into Neighboring Georgia

China to Strengthen Coordination With Russia (5:34 a.m.)

Chinese Deputy Foreign Minister Ma Zhaoxu said while meeting Russian Ambassador Andrey Denisov that Beijing is willing to strengthen strategic coordination and cooperation in various sectors.

China will deepen cooperation with its long-time partner Russia at the UN, G-20, Shanghai Cooperative Organization and BRICS in an effort to build a “more fair and reasonable” global governance system, Ma said, according to a statement from China’s Foreign Ministry.

Biden warned Chinese President Xi Jinping in a March telephone call of “consequences” should Beijing provide support for Putin’s war, according to the White House readout of the chat.

Blinken Plans ‘Candid Exchange’ With China’s Wang (1:55 a.m.)

Blinken leaves for Bali on Wednesday to attend the G20 foreign ministers meeting that’s set to be dominated by the fallout from Russia’s invasion. He will have discussions with Chinese counterpart Wang Yi, a top US administration official said.

“This will be another opportunity, I think, to have a candid exchange on that, and to convey our expectations about what we would expect China to do, and not to do, in the context of Ukraine,” Assistant Secretary of State for East Asian and Pacific Affairs Daniel Kritenbrink told reporters in Washington.

Nicholas Burns, the US ambassador to China, this week called on Beijing to stop spreading Russia’s “lies,” in an unusually direct and public rebuke. While China has said it doesn’t support the war and urged talks to end the fighting, top officials and state media have repeatedly blamed the US for provoking Russia by allowing the North Atlantic Treaty Organization’s expansion.

Read more: Blinken Plans ‘Candid Exchange’ With China’s Wang on Ukraine War

Blinken Isn’t Expected to Meet Lavrov at G20 (12:40 a.m.)

Blinken isn’t expected to meet Lavrov at the G20 event, according to State Department spokesman Ned Price. He told reporters “the secretary will be a full and active participant” at the gathering in Indonesia despite Russia’s presence.

The US government is committed to a successful meeting, Price said, but “it cannot be business as usual with Russia.” He predicted that G20 members would “express no shortage of condemnation for the actions on the part of the Russian Federation” in the Ukraine invasion.

Donetsk Regional Governor Urges Locals to Evacuate (9:10 p.m.)

Regional Governor Pavlo Kyrylenko urged people who remain in the eastern Ukrainian towns of Kramatorsk and Slovyansk to evacuate as Russian attacks intensify. Kyrylenko said in a nationally televised address that the Russian army was firing randomly, targeting local residents and seeking to spread panic.

“People get killed every day in Donetsk region since the beginning of the large-scale invasion,” he said. Kyrylenko hopes as many as 350,000 people remaining in Donetsk province will evacuate.

Kaliningrad Governor Hopes EU Is About to Ease Restrictions (7:30 p.m.)

The governor of Kaliningrad said he’s hopeful the European Union may ease limitations this week on the transit of goods to Russia’s Baltic exclave.

“We’re getting signals through various channels that they’re likely to take this decision this week,” Anton Alikhanov told Rossiya 24 state channel, Interfax reported.

Russia has warned that it will retaliate against EU member state Lithuania for blocking rail transport of goods such as steel in accordance with the bloc’s sanctions measures.

Ruble Falls as Investors Rush to Safety of US Dollar (5:49 p.m.)

The Russian currency plummeted the most in four months, pulling back from a rally that’s confounded traders and politicians alike since the early days of Putin’s war.

The currency dropped as much as 11% to 62.30 per dollar amid broad strength in the greenback that also saw the euro plunge to a two-decade low. The decline follows Russia’s relaxation of capital controls and its canceling a rule forcing the conversion of export revenues to rubles.

Germany Faces Limited Options If Nord Stream Flows Don’t Return (3:55 p.m.)

A key pipeline delivering Russia’s natural gas to Europe may not return to full capacity after planned maintenance this month, Goldman Sachs Group Inc. said, echoing the concerns of German officials.

Nord Stream 1 is set to shut for work on July 11-21, tightening a market that’s seen prices soar in recent weeks. With Moscow having already slashed flows through the pipe to 40% of capacity, any move to withhold supplies for longer would severely hurt Europe’s efforts to refill stockpiles for winter.

“While we initially assumed a full restoration of NS1 flows following its upcoming maintenance event, we no longer see this as the most probable scenario,” Goldman analysts said in a note.

Bulgaria Seeks Options to Help Process Ukrainian Grain (3:46 p.m.)

Bulgaria’s state-owned Varna port may hold talks with operators of private port terminals to help find storage and process grain loads from Ukraine, the Transport Ministry said.

The ministry is planning to seek financial aid from the European Commission to build additional grain silos, as existing storage capacity at all terminals in Varna is 150,000 tons.

Turkey Renews Threat to Block NATO Expansion (11:32 a.m.)

Turkey is threatening to veto NATO membership for Sweden and Finland, even as the military alliance formally paved the way for the two Nordic countries to join.

Turkey won’t ratify membership in the North Atlantic Treaty Organization for the applicants if they don’t fulfill their promises to combat terrorism and extradite suspects under a memorandum of understanding reached at an alliance summit in Madrid last week, Foreign Minister Mevlut Cavusoglu said Monday.

“They have to comply with this document. If they don’t then we won’t allow them to join NATO,” Cavusoglu told NTV television.

UniCredit Mulls a Russia Exit It Can Reverse (10:38 a.m.)

UniCredit SpA is considering selling its Russian unit through a structure that would let the bank repurchase the subsidiary if the geopolitical situation stabilizes, according to people familiar with the matter.

Italy’s second-largest lender is looking at several possible deal arrangements, including one that would give it the option of buying back the unit depending on market and political conditions, said the people, who asked not be identified because the matter isn’t public.

Romania’s TTS Opens Danube Route for Ukraine Grain (9:33 a.m.)

Transport Trade Services SA, Romania’s largest logistics company on the Danube, has opened a new water-only transport route to help increase grain exports from Ukraine amid a surge global food prices.

Romania has already facilitated the export of more than 1 million tons of grain from Ukraine since the Russian invasion in February. The new route “ensures a significant increase of the Ukrainian freight flows, eliminating from the supply chain the berths and storage spaces in the Constanta port,” TTS said in an e-mailed statement. The port, on the Black Sea, has been overwhelmed by a jump in traffic.

Ukraine to Bring Outspoken Berlin Envoy Home: Bild (9:17 a.m.)

Ukraine’s ambassador to Germany, Andriy Melnyk, is poised to return to Kyiv after eight years in Berlin, according to Bild Zeitung, which cited unidentified sources in the Ukrainian capital. Melnyk has been strident in his criticism of Germany and accused Chancellor Olaf Scholz of taking too long to send heavy weaponry to Ukraine.

13,000 of Musk’s Starlink Internet Devices in Ukraine (8:22 a.m.)

Elon Musk’s satellite Internet service Starlink has been vital in keeping parts of Ukraine affected by the Russian invasion connected, the country’s minister for digital transformation, Mykhailo Fedorov, said in an interview with Bloomberg TV.

More than 13,000 Starlink devices are operating in Ukraine, including on the front line, and government officials are in daily contact with Musk’s representatives, Fedorov said.

Russian Imports Steady After Initial Sanctions Shock (7:56 a.m.)

Russian imports picked up a bit in May, even from some countries that have joined the US and its allies in imposing sanctions over the Kremlin’s invasion of Ukraine, as the economy showed signs of stabilizing.

Trade flows into Russia remain far below pre-invasion levels, but imports for the five major trading partners were down 29% in May on the year, compared with a 43% drop in April. Bloomberg calculated the figures based on reports from those countries, which account for about half of Russian imports. Russia stopped releasing detailed trade data after the invasion.

Turkey, which hasn’t joined the sanctions, saw exports to Russia jump to the highest since December.

Russian Tycoon Agrees to Nornickel-Rusal Merger Talks (7:25 a.m.)

Billionaire Vladimir Potanin, the biggest investor in MMC Norilsk Nickel PJSC, said he’s ready to discuss merging the mining giant with United Co Rusal International PJSC as sanctions against Russia weigh on both companies.

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