Secondary Sanctions, Lowest Jobless Claims Since ’69

Russia invaded Ukraine 1 month ago and immediately faced economic sanctions from the US and its allies. Economists are predicting the Russian economy will contract 15% this year. To keep things afloat the Russian government and central bank shut down the stock market after the Moscow Stock Exchange Index dropped 33% in one day. On Thursday they reopened the Moscow Exchange for trading on 33 blue chip companies. Short selling (betting on the market crashing) and foreign investors are still blocked. Foreign investors will be allowed back in April but they will only be able to buy and not sell. Essentially there will be two separate markets, one for Russians, and one for everyone else. We might see a Russian oil company trading for a lower price in New York than it would be trading for in Moscow. This will make Russia un-investible to foreign investors. Another way Russia is trying to keep their economy afloat is by selling their $130B of gold reserves (about half of their $640B in foreign currency is frozen). To combat this the US has put secondary sanctions on Russian gold meaning that if you trade gold with sanctioned banks you yourself will face sanctions.

Mortgage Rates increased again this week and are up 1.5% over the past two months. The price of Mortgage Backed Securities (MBS) continues to decline in a steep pattern. This decline is due to rising inflation.

Jobs – the number of people filing for unemployment for the first time declined sharply this week to 187,000 – the lowest number since 1969. The number of folks filing for ongoing unemployment claims is down to 1.35M – the lowest number since 1970. The labor market is extremely tight.

Home Sales – fell 4.1% in February and are down 5.4% year over year. Interest rates are certainly impacting demand but the main problem is lack of inventory. Last month there were 870,000 for sale nationwide which is down 16% from the previous year and 34% since July.

Mortgage Applications to purchase homes fell 1.5% from the previous week and is down 12% year over. Cash buyers make up 25% of transactions (significantly larger than last year) so purchase volume is down approximately 9%. Refinance applications dropped 14% last week and are down 54% year over year.

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