The war in Ukraine will overshadow President Biden's first State of the Union address tonight, which is set to be broadcast from Capitol Hill starting at 9 p.m. ET. He'll take the podium following two years of a pandemic that has killed nearly 1M Americans, as COVID fatigue and the withdrawal of restrictions take shape following a sustained drop in infections from the Omicron wave. Americans from all walks of life will be tuning in the speech, and while the message itself isn't typically market-moving, comments or legislative priorities could show what is in store for various sectors of the economy.

Snapshot: Consumer prices over the past 12 months have shot up by 7.5% amid soaring inflation at the grocery store, as well as the gas pump. While energy prices have been exacerbated by the Russian invasion, Biden is expected to showcase the efforts he has taken "to rally the world to stand up for democracy and against Russian aggression." He's also likely to point to his coronavirus relief package, calling it the catalyst for the fastest job growth in American history and best economic performance since 1984.

With price pressures remaining a big problem, Biden will detail further efforts to tackle the costs. Those include "strengthening the supply chain, reducing the cost of everyday expenses for working families, promoting fair competition and eliminating barriers to good-paying jobs." Biden also plans to call on Congress to send him legislation combating climate change, but may tread carefully around his "Build Back Better" agenda, which was torpedoed by Republican opposition and key Democratic holdout Sen. Joe Manchin of West Virginia.

Manchin at it again: On the eve of Biden's SOTU address, Manchin urged the administration to boost domestic energy production, saying he was planning weeks of hearings on energy independence - for both the U.S. and to support NATO allies. "We produce energy cleaner than anybody in the world. We're buying 650K barrels a day from Russia. It's ridiculous. Totally ridiculous." Senator Lindsey Graham (R-SC) also related that Ukraine's ambassador to the U.S., Oksana Markarova, has asked for Russian oil and gas to be sanctioned. "We're not using the energy sector as a weapon. We're not hitting Putin where it hurts most." (29 comments)

Russian retaliation

As the drumbeat of Western sanctions against Russia gets louder, Moscow is looking to fight back and insulate its economy from the penalties. Vladimir Putin has already hardened capital controls, banning all Russian residents and companies from transferring foreign currency abroad to prop up the plummeting ruble. The steps include a ban on payments of hard currency made to foreigners "in connection with [new] loan agreements," and some say it could even lead to a default on Russian debt, an occurrence that last happened in 1998 and Russia vowed never to happen again.

Commentary: "Putin is himself now cutting Russia off from international capital markets for a very long time. Russia's financing costs will stay elevated for a long time - even the Chinese will not lend," said economist Timothy Ash, a specialist in Russian government debt. The Moscow Stock Exchange was shuttered all day on Monday and it will be closed today as well.

Meanwhile, Russia has barred airlines from 36 countries from its airspace, in an effort to hit back at the widening raft of Western sanctions (even the neutral Swiss have jumped on the train). Russia is also debating whether to retaliate by freezing Western assets and may pull out of the New START nuclear arms control treaty that limits the U.S. and Russian nuclear arsenals. Scrapping the agreement could raise new threats to global security after Moscow's decision to put its nuclear deterrent forces on "high alert."

On the ground: Fighting is intensifying across Ukraine as talks on a potential ceasefire ended with no deal on Monday. There were also reports on the use of banned cluster munitions and vacuum bombs amid heavy shelling on civilian areas in Ukraine's east. Russian ground forces are still massed 16 miles north of Kyiv, and the country is said to be sending a large reinforcement of convoys across the border, in what could be preparation for a renewed push to besiege the Ukrainian capital. (16 comments)

Corporate divestment

Operating in Russia has become increasingly problematic, with the list of companies cutting ties with the country or reviewing their operations growing by the hour. Oil major Shell (SHEL) has joined BP (BP) and Equinor (EQNR) in walking away from Russian domiciled assets, leaving Exxon (XOM) and TotalEnergies (TTE) as the only energy majors to have significant operations in Russia. Corporations poured into Russia after the Soviet Union fell apart in 1991 - seeing a market full of natural resources and millions of new consumers - but the risks associated with the investment have now become apparent following the invasion of Ukraine.

The latest: Netflix (NASDAQ:NFLX) won't be adding Russian channels to its service under regulations that were to take effect today, while Warner Bros. (NYSE:T) pulled this week's release of The Batman from Russian screens. Disney (DIS) has also paused theatrical releases in the country and said banking sanctions will cut into revenue from its popular Encanto soundtrack. Elsewhere, Facebook (NASDAQ:FB)-parent Meta and YouTube (GOOG, GOOGL) blocked access to Russian news outlets like RT, and Twitter (TWTR) announced that any link shared by a user to a Russian state media organization's website will automatically receive a label warning.

Meanwhile, Harley-Davidson (NYSE:HOG) and General Motors (NYSE:GM) are halting shipments to Russia, saying "thoughts are with the people of Ukraine at this time." Boeing (NYSE:BA) additionally paused operations at its Moscow training campus, while the world's biggest aircraft leasing firm, AerCap (AER), put a stop to its Russian leases. Fresh sanctions have also seen Mastercard (NYSE:MA) block multiple financial institutions from its payment network and prompted global bank HSBC (NYSE:HSBC) to assess its operations in the country.

Banking clarification: "A sanction - which is very targeted and clean - says I cannot do business with you. A SWIFT thing says I cannot use a communication to do business with you, but I can still do business with you," JPMorgan (JPM) CEO Jamie Dimon said during an interview with Bloomberg. "There are a lot of workarounds for SWIFT, so there are different tools we use for different reasons. Remember, the government itself wanted to have an open conduit for energy payments. So there are a whole lot of issues they have to work through." (39 comments)

Sanctions evasion?

Several crazy sessions for cryptos have taken place over the past few days as traders continue to size up Russia's invasion of Ukraine. There has also been fierce debate whether Bitcoin and related currencies could be used to evade Western sanctions, as well as crypto's correlation to risk assets. At the time of writing, Bitcoin (BTC-USD) is up 14% to $43,590, after falling under the $35,000-level just days ago.

Quote: "Bitcoin and cryptocurrencies are arguably having their watershed moment against backdrop of global uncertainty and tension related to the Russia-Ukraine crisis," said Vijay Ayyar, VP of Corporate Development at crypto exchange Luno. "Crypto is decoupling from traditional markets and can be clearly seen in the performance. It's also being donated to the Ukrainian army, proving that crypto is fundamentally a technology that cannot be ignored."

"Unless the Russian companies are on the sanctions list, we can't see anything that would keep a U.S.-based company from paying a Russian company through crypto to just transact," added Rance Mashek, president and founder of trading platform iVest+. The Biden administration has also reportedly asked exchanges to ensure that Russian individuals and businesses aren't using crypto to avoid U.S. sanctions, though a similar request made by Ukraine was not honored by major players like Coinbase (COIN). The EU is meanwhile trying to move quickly to approve cryptocurrency regulation that would give a framework for the industry at the governmental level.

Outlook: Even if Russia would turn to cryptocurrency to evade sanctions, it wouldn't be able to be used on the scale needed to circumvent the penalties. "I think the issue is a couple of things... the liquidity just simply isn't there," explained Ari Redbord, head of legal and government affairs at TRM Labs. "Russia needs a lot more access to funds in order to replace what is being lost here in terms of sanctions, and also fund what is becoming a more and more costly war. In this day and age, you still cannot fund a war or buy weapons - for the most part - with cryptocurrency. So Russia will look to crypto exchanges in order to do that, but the overwhelming amount of liquidity is at the large cryptocurrency exchanges that have robust compliance controls in place."

Today's Markets

In Asia, Japan +1.2%. Hong Kong +0.2%. China +0.8%. India closed.
In Europe, at midday, London -1%. Paris -2.6%. Frankfurt -2.4%.
Futures at 6:20, Dow -0.4%. S&P -0.5%. Nasdaq -0.6%. Crude +3.3% to $98.83. Gold +1.3% to $1925.40. Bitcoin +14% to $43,590.
Ten-year Treasury Yield -10 bps to 1.74%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM Fed's Bostic Speech

Companies reporting earnings today »

What else is happening...

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