Closing Stock Market SummaryThe stock market had a choppy session today. The S&P 500 was above its 50-day simple moving average (3860.02) and up 0.7% at today's high. It closed with a loss of 0.7%. The major averages were steered by price action in the mega cap stocks.
Alphabet (GOOG 94.82, -10.11, -9.6%) and Microsoft (MSFT 231.32, -19.34, -7.7%) led the downside charge following their earnings reports, yet worries about what may come for Apple (AAPL 149.35, -2.99, -2.0%) and Amazon.com (AMZN 115.66, -4.94, -4.1%), when they report later this week, undercut the heavily-weighted and widely-held stocks.
The Dow Jones Industrial Average was able to close just a whisker above the flat line thanks in part to the earnings-driven gain in Visa (V 203.33, +8.95, +4.6%). Index level gains were limited, however, due to a big loss in Boeing (BA 133.79, -12.86, -8.8%). The company reported disappointing quarterly results and said its path to recovery is taking a bit longer than expected driven by the challenging macro environment. Supply constraints continue to impact production in both its commercial and defense businesses.
There was underlying strength in today's trade, however, as the Invesco S&P 500 Equal Weight ETF (RSP) closed with a 0.2% gain. Also, advancers led decliners by a roughly 4-to-3 margin at both the NYSE and the Nasdaq.
Factors supporting the broader market included favorable quarterly results from names like Harley-Davidson (HOG 41.80, +4.68, +12.6%) and Bristol-Meyers (BMY 74.45, +1.68, +2.3%), a growing belief that the Fed will soften its approach after the November meeting, and a pullback in Treasury yields. The 10-yr note yield fell nine basis points to 4.02% and the 2-yr note yield fell four basis points to 4..42%.
Roughly half of the 11 S&P 500 sectors closed with a gain, led by energy (+1.4%) amid rising oil prices. WTI crude oil futures rose 3.4% to $87.86/bbl.
Meanwhile, the communication services sector (-4.8%) was the worst performer by a wide margin, largely due to Alphabet and Meta Platforms (META 129.82, -7.69, -5.6%). Information technology (-1.1%) was another top laggard thanks to its mega cap components, but its losses were limited by big earnings-driven gains in Enphase Energy (ENPH 291.87, +26.28, +9.9%) and Visa.
Small and mid cap stocks fared better than their larger peers today. The Russell 2000 (+0.5%) and S&P Mid Cap 400 (+0.2%) both logged a modest gain on the day.
Ahead of Thursday's open, Comcast (CMCSA), Anheuser-Busch InBev (BUD), Caterpillar (CAT), Merck (MRK), Northrop Grumman (NOC), Honeywell (HON), AutoNation (AN), McDonald's (MCD), Mastercard (MA), and Altria (MO) are set to report earnings.
Thursday's economic data includes:
- 8:30 ET: Advance Q3 GDP (consensus 2.3%; prior -0.6%), advance Q3 Chain Deflator (consensus 5.3%; prior 9.0%), weekly Initial Claims (consensus 220,000; prior 214,000), Continuing Claims (prior 1.385 mln), September Durable Orders ( consensus 0.6%; prior -0.2%), and Durable Orders ex-transportation ( consensus 0.2%; prior 0.2%)
- 10:30 ET: Weekly natural gas inventories (prior +111 bcf)
Reviewing today's economic data:
- Weekly MBA Mortgage Application Index -1.7%; Prior -4.5%
- September Adv. Intl. Trade in Goods -$92.2 bln; Prior -$87.3 bln
- September Adv. Retail Inventories 0.4%; Prior 1.4%
- September Adv. Wholesale Inventories 0.8%; Prior was revised to 1.4% from 1.3%
- September New Home Sales 603K ( consensus 575K); Prior was revised to 677K from 685K
- The key takeaway from the report is that it reflects how the spike in mortgage rates has created affordability pressures for lower-income buyers. The jump in median and average selling prices was skewed by higher-priced homes accounting for a larger percentage of total new homes sold.
Dow Jones Industrial Average: -12.4% YTD
S&P Midcap 400: -15.9% YTD
S&P 500: -19.6% YTD
Russell 2000: -19.6% YTD
Nasdaq Composite: -29.9% YTD
Gagosian Denies It Is in Talks With LVMH
Speculation that the world's biggest art gallery and the luxury conglomerate are in talks about a deal has been swirling.
Gagosian, the world’s biggest art gallery, has denied speculation that it is in talks with LVMH Moët Hennessy Louis Vuitton.
Talk of a potential deal between the two has wide been circulating both within the art and luxury goods worlds, with two art publications — the Art Newspapers Italian edition and Artnet News — reporting on the speculation. The speculation suggested that LVMH was in talks to invest in Gagosian, the mega-gallery founded by Larry Gagosian in Los Angeles, California, in 1980 and which now encompasses some 16 spaces worldwide.
Multiple sources also told WWD and ARTnews, its sister publication within Penske Media Corp., that they were aware of talk of
But on Tuesday, a Gagosian representative vigorously disputed that any deal is in the works.
“There is absolutely no truth to the rumor and the company is not for sale,” the Gagosian spokesperson said in an email.
LVMH declined to comment.
LVMH’s operations span from Christian Dior and Louis Vuitton to Moët Champagne, the Cheval Blanc hotels and the yacht manufacturer Princess Yachts. Owning or investing in Gagosian would give the conglomerate a foothold in the rapidly expanding art market.
The speculation comes as the art market directed its attention last week to the French capital. Paris+, the first edition of a new Art Basel fair, just completed its first edition in the city, where Gagosian has two locations, plus a third in the nearby suburb of Le Bourget. Numerous luxury brands, including several owned by LVMH, had activations around the art fair, as reported.
The talk also arrived as Gagosian begins to plot its future. Larry Gagosian, who is 77 years old, has begun to reveal his succession plans in the past few years, naming Andrew Fabricant as the gallery’s chief operating officer in 2019. Details have been scant since then, however, leading to speculation about where the gallery is headed in the years to come.
Previously, Fabricant has advocated for a total merger of the art and fashion sectors. “You have [Bernard] Arnault buying Tiffany’s and then buying a Basquiat painting and then producing a Patek Philippe limited[-edition] watch that is first seen on Jay-Z’s wrist,” he told WWD earlier this year. “The interaction of art and commerce and fashion is inevitable. It’s just being accelerated by the consolidation of all these issues, whether it’s Kardashian, Arnault or the Gagosian Gallery having 19 galleries. It’s just more, more, more. It’s also mutually beneficial.”
While Gagosian’s main competitors — David Zwirner, Hauser & Wirth and Pace — have made forays into industries beyond the art world, none can boast an investment from a company as large as LVMH.
Gagosian represents some of the world’s most high-profile artists, including Georg Baselitz, Theaster Gates, Michael Heizer, Damien Hirst, Takashi Murakami, Richard Serra and Jordan Wolfson. These artists appear side by side on the roster with younger ones with loyal market followings, like Jadé Fadojutimi and Anna Weyant.
Gagosian reportedly accounts for a billion dollars in sales annually.
Meanwhile, Bernard Arnault, LVMH’s chairman and chief executive officer, is one of the world’s top art collectors. Arnault is known to buy various Gagosian artists, including Hirst, Murakami and Richard Prince. Arnault and other members of his family are also believed to be close with Larry Gagosian. The luxury titan also founded the Fondation Louis Vuitton in Paris that houses some of his collection in a spectacular museum designed by Frank Gehry.
The acquisition of a stake in Gagosian would give Arnault a leg up in the art world over his business rival, François Pinault, the founder of French luxury goods company Kering, which owns the auction house Christie’s. Pinault is also a major collector with his own museum in Paris dedicated to his collection.
Another art connection is its portfolio, which at one point included a stake in the Phillips auction house. LVMH acquired the stake in 1999, then divested itself of it four years later amid a period of financial strain at Phillips.
Talk of LVMH’s potential investment in Gagosian comes as the boundary between art galleries and lifestyle brands has become increasingly blurred.
Gagosian, for its own part, operates a series of shops that sell branded offerings. Pace recently opened a teahouse in Seoul, South Korea, that’s partnered with the luxury brand Osulloc, and Manuela and Iwan Wirth, the founders of Hauser & Wirth, run a hospitality arm.
Twitter’s Elon problem could soon become Apple’s Elon problem, too
Reports indicate Elon Musk is on track to close his purchase of mildly popular bird website Twitter dot com as of this Friday, which is when he’s been ordered by the judge in the ongoing legal fracas to do so anyway. The deal closing is bound to have huge impacts — for Twitter employees themselves; for global political leaders; for news media; and, potentially, for Apple and its escalating in-app-purchase land grab.
Apple updated its developer guidelines this week, mending the wall on its garden where there gaps existed previously around digital revenue opportunities for third-party developers. One of these focused on crypto and NFTs, but another seeks rent on revenue made by social networks around promoted posts, including paid promotional efforts in Meta’s Facebook and Instagram apps, for example. Those rules also apply to Twitter, but that social network already makes use of Apple’s IAP program to enable them on iOS devices, meaning the iPhone-maker already gets its cut.
If Twitter’s already cool with Apple’s skim, then everything should be fine… except that Musk has waded into the wider debate about what’s fair for Apple to charge its partners when it comes to digital transactions on its platform. Early on Wednesday, the billionaire serial founder tweeted a response to his longtime investor Bill Lee, agreeing that “30% is a lot” for Apple to charge developers for IAP transactions. This isn’t the first time he’s expressed disapproval of the fee, either.
Right now, Musk has little stake in this fight, but come Friday that could change significantly, especially as he looks for ways to boost Twitter’s revenue once he takes over control. Apple already has its fair share of influential vocal developer opposition, including Epic’s Tim Sweeney and Spotify’s Daniel Ek, but the influence Musk wields with his zealous troll army is on another level entirely.
A Musk-owned Twitter is going to have ripple effects that extend far and wide, but this could be one that shakes up some of the foundations upon which the modern tech ecosystem is based.
Ford, VW-backed Argo AI is shutting down
Argo AI, an autonomous vehicle startup that burst on the scene in 2017 stacked with a $1 billion investment, is shutting down — its parts being absorbed into its two main backers: Ford and VW, according to people familiar with the matter.
During an all-hands meeting Wednesday, Argo AI employees were told that some people would receive offers from the two automakers, according to multiple sources who asked to not be named. It was unclear how many would be hired into Ford or VW and which companies will get Argo’s technology.
Employees were told they would receive a severance package that includes insurance and two separate bonuses — an annual award plus a transaction bonus upon the deal close with Ford and VW. All Argo employees will receive these. For those who are not retained by Ford or VW, they will additionally termination and severance pay, including health insurance. Several people told TechCrunch that it was a generous package and that the founders of the company spoke directly to its more than 2,000 workforce.
TechCrunch will update this story with official comment.
Argo was founded in 2016 by Bryan Salesky and Pete Rander. The company came out of stealth in February 2017 when Ford announced it would invest $1 billion over five years into Argo. Since then, the company has raised more than $2.6 billion, primarily from Ford and VW, in a pursuit to develop, test and eventually commercialize its automated driving system.
The initial Ford investment came at a particularly hype-y time for the nascent autonomous vehicle industry. Startups, many founded by early pioneers of Google’s self-driving project, were landing eye-popping venture capital deals. A string of acquisitions followed: GM bought Cruise for $1 billion in 2016; Delphi, which is now Aptiv, acquired nuTonomy for $450 million; and Amazon bought Zoox.
The promises around commercializing AV technology have proven more difficult than expected. A wave of consolidation washed over the industry with companies folding, being absorbed into other companies, including Apple, and others turning to SPACs in hopes of gaining the capital it needs to continue its mission.
Argo seemed to be gaining ground in the past year. The company’s self-driving Ford Fusion vehicles, and now Ford Escape Hybrids, were frequently seen testing on public roads in Austin, Detroit, Miami, Palo Alto and Pittsburgh, where it is headquartered. In the EU, Argo was using the all-electric Volkswagen ID Buzz for its testing programs in Hamburg and Munich. Argo also has several pilot programs underway in Austin, Miami and Pittsburgh with Lyft, Walmart and 412 Food Rescue.
And just last month the company revealed an ecosystem of products and services designed to support commercial delivery and robotaxi operations. The products — a list that includes fleet management software, data analytics, high-definition mapping and cloud-based communication tools — stretches far beyond the self-driving system that allows a vehicle to navigate city streets without a human driver behind the wheel. Argo appeared to be telling the world it was open for business.
This story is developing …
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Traders urge ECB to ease collateral shortage in repo market
International Capital Market Association warns of ‘rising dysfunction’ in money markets
The eurozone’s repo and money markets are becoming more dysfunctional and threatens the European Central Bank’s ability to push its monetary policies through markets, an influential trade group has warned.
The International Capital Market Association, which represents the bond market’s biggest traders, said it had become concerned about the functioning of Europe’s €10tn repo markets because of a scarcity of liquid assets, and excess liquidity in the region’s banking system.
ICMA’s warning comes amid fears climbing global interest rates and poor trading conditions have heightened the risk of market instability.
UK gilt markets descended into chaos last month after the government’s ill-fated “mini” Budget of unfunded tax cuts sharply worried investors, sending their yields soaring — although this was because of a lack of buyers of gilts, rather than excess liquidity.
Repo markets are a crucial source of short-term funding and collateral for banks, helping them meet margin requirements for derivatives trades. The European Central Bank also sees it as a critical mechanism for transmitting monetary policy.
ICMA said that while the imbalance in eurozone repo markets has led to ructions, notably in March 2020 at the onset of the coronavirus pandemic, the normalisation of interest rates increased the potential for bigger and more frequent market dislocations.
“Rising dysfunction in the market could imperil the transmission of monetary policy,” ICMA wrote in a letter to the ECB’s director-general of market operations, signed by division heads at BlackRock, Axa Investment Managers, Barclays and UBS.
“We’ve moved from an environment where you’ve needed to inject liquidity on a large scale to questioning at what pace that should be reduced,” Bryan Pascoe, chief executive of ICMA, told the Financial Times. “There are contradictory pressures of rates needing to move higher while avoiding demand destruction. It’s a fine balancing act.”
ICMA recommended the ECB consider other measures to help markets, such as a reverse repo facility similar to the one introduced by the Federal Reserve in 2013. In it, the US central bank sells securities to counterparties and buys them back later, similar to a short-term loan.
ICMA also highlighted the Swiss National Bank’s plan to issue tradable Treasury bills, saying it was simpler to create than a reverse repo facility and “would have the additional advantage of not tying up bank balance sheets”.
Germany’s debt agency this month sought to address the scarcity problem by creating more government debt securities that it can lend out to investors via repo markets.
The ECB has also taken some steps to address the issue, increasing the amount of cash that can be used as collateral in its securities lending facility in December and removing a zero per cent cap on interest for government deposits last month.
The central bank also discussed the idea of launching a reverse repo facility or issuing its own debt certificates at a meeting last month of its money market contact group, a forum for discussions with financial institutions. But the ECB has since pushed back against the idea that it is planning to imminently adopt such proposals.
The ECB, which declined to comment on the ICMA letter, has acquired a €5tn portfolio of mostly government bonds over the past decade, which has increased excess liquidity at banks and created a scarcity of high-quality securities.
This has put downward pressure on risk-free rates at a time when the central bank is trying to raise them. Konstantin Veit, portfolio manager at Pimco, said: “As there are limited safe options out there to invest in, this leads to collateral scarcity and drives a large part of the money market to trade well below the ECB’s deposit rate.”
Veit said he expected the ECB to consider creating a similar vehicle to the Fed’s reverse repo facility or to even issue its own debt, while adding that such a move was not imminent.
ICMA warned “pressures on short-term markets and collateral scarcity could be further accentuated” by the changes expected to be announced by the ECB this week to its €2.1tn of ultra-cheap loans to banks, known as targeted longer term refinancing operations (TLTRO).
The ECB is expected to encourage banks to repay a big chunk of TLTRO loans in December by making them less attractive. However, officials think this should help to ease the scarcity of high-quality bonds by freeing up the collateral pledged against the loans and reducing the €5tn of excess liquidity in the euro area.
Roubini Warns Of Imminent Dollar Crash: The Fed Is Going To "Wimp Out" In The Inflation Fight
Economist Nouriel Roubini says Federal Reserve is going to “wimp out” on the inflation fight and that will lead to a dollar crash.
Roubini is the Professor Emeritus at the Stern School of Business, New York University. He recently appeared on Bloomberg Markets and Finance to talk about threats to the global economy.
Roubini predicted the housing bubble would pop in an IMF position paper in 2006. When asked if we were there again, he emphatically said, “Yes.”
Yes, we are here again. But in addition to the economic, monetary and financial risks — and there are new ones now, we’re going toward stagflation like we’ve never seen since the 70s — in the book, I point out that there are also geopolitical risks.”
These include possible confrontations with China and Russia, environmental risks, health risks, and technological risks. Roubini called it a confluence of “mega risks.”
You might not expect Roubini to talk like this. He served in the Clinton administration as a senior economist in the White House Council of Economic Advisers and then moved to the Treasury department as a senior adviser to Timothy Geithner who was undersecretary for international affairs at the time. Despite his work in a Democratic Party administration, he sounds a lot like Peter Schiff when it comes to his views on the trajectory of the economy.
Roubini pointed out the amount of debt in the global financial system. Debt to GDP has gone from 200% to 350% globally. In the US the debt to GDP ratio is higher than after the Great Depression and WWII. After the 2008 financial crisis and during the pandemic, Zombie households, corporations, banks and governments were bailed out by negative interest rates and quantitative easing.
This time around is different because we have so much debt and central banks like the Fed have to increase interest rates to fight inflation so that zombie institutions are going to go bankrupt. That’s why not only are we going to have inflation and stagflation, but we’ll have a stagflationary debt crisis.”
We had supply shocks in the 70s similar to those we’ve experienced in the post-pandemic era. But at that time in most of the developed world, debt ratios were low. There were no debt crises in developed nations. But we did see debt crises in Latin America because those countries like Brazil, Mexico and Argentina had borrowed too much. When Volker jacked up interest rates to 20%, they went bankrupt.
Today, we have the worst of the 70s. We have a massive amount of stagflationary negative supply shock … and at the same time, we have a debt ratio like we’ve never seen before. So, we get a stagflationary debt crisis.”
The IMF identifies around 40 emerging market countries on the verge of a sovereign debt crisis. And Roubini said we are starting to see these problems spilling to developed nations. He specifically mentioned the United Kingdom being forced to monetize reckless fiscal stimulus.
Roubini agrees with Peter Schiff that central banks can’t do what’s necessary to win the inflation fight.
Right now, all central banks are playing tough, and talking tough, and acting tough – hawkish – because they have a problem of credibility. But in my view, there are two problems. One problem is if they try to get to 2% inflation, they cause a recession. And this recession is not going to be short and shallow. It is not going to be garden variety. It’s not going to be plain vanilla. It’s not going to be two quarters of negative growth and then inflation collapses and they can ease again. … It’s going to be a severe recession because of the debt ratio — because we’re going into fiscal and monetary tightening. And at the same time, not only do we have an economic crash, you’re going to have also a fiscal crash.”
Roubini called it a debt trap. There is so much private and public debt that any attempt to seriously fight inflation will ultimately cause a crash in financial markets.
And not just the stock market. That’s the least important. Credit markets and bond markets — And that crash and the financial crash feeds on the economic crash and vice versa. And therefore, they’re going to wimp out and they’re going to blink.”
The Bank of England already blinked. Roubini said the Federal Reserve is going to do the same.
Roubini also warns of an impending dollar crash. He said the greenback is at risk due to the twin deficits – budget and trade. He also mentions the weaponization of the dollar. But the real catalyst will be the Fed “wimping out.”
Once the Fed is going to essentially prevent an economic and financial crash – or try to prevent it by … stopping raising rates, even though inflation is too high, then the dollar is going to start to sharply weaken. That is going to be the trigger for it. Because what is raising the dollar is tight monetary policy.”
So, what can you do to protect yourself? Roubini recommends buying gold.
Gold has not done very well because you have tight monetary policy and a strong dollar. But if central banks are going to blink and wimp out, gold is going to rise in value.”
Cryptos: stable coins, but in the wrong way
Rising rates have shown how dependent cryptocurrencies were on broader bullishness
Cryptos, never easy assets for non-believers to rationalise, are presenting yet another conundrum. Instead of gyrating wildly, as they had previously done, they have stabilised.
Bitcoin has been rangebound around $20,000 for the past four months. Ethereum is stuck at about $1,300. The S&P 500 index, to which some cryptocurrencies had shown a close relationship, has gained and lost about 20 per cent over the same period.
You might think that cryptos have vanquished critics and proved their worth as an uncorrelated asset and a store of value. If so, think again.
Bitcoin has crashed from its peak of $68,000 in November last year. Crypto businesses such as Voyager Digital and Celsius Network have gone bust. So-called stablecoins — terra, luna — have evaporated. A host of entities with horrendous risk management were caught in a whirlpool of contagion and flushed out of the cryptosphere.
The value destruction has been immense. The market worth of all bitcoins in existence has fallen from $1.3tn in November to about $400bn today. Since its launch last October, the world’s first exchange traded fund tracking the price of bitcoin has lost just under $1.2bn. That is about two-thirds of investors’ money and a bigger money bonfire than for any other misfiring ETF debut.
The crash may also be the death knell for El Salvador’s much-hyped billion dollar bitcoin bond. The first and so far only country to accept bitcoin as legal tender appears to have quietly shelved an issue originally slated for March this year.
More than half of all bitcoin wallets are in the red. This has happened before. But crypto is in its first bear market since the end of the money-printing, zero interest rate era. “Bitcoin was launched into the biggest bull run in history,” says Dan Ashmore, a crypto data analyst. “It has never existed in a wider bear market.”
Higher energy costs have made profits harder for bitcoin miners to realise. The price crash appears to have flushed out the wild, leveraged investors. That leaves true believers and habitual speculators “HODLing” on for dear life.
Bitcoin retains its utility to buyers as a speculative asset, ideological badge or currency for illicit transactions. You could theorise that its current price represents that residual value. Lex had been using bitcoin as a benchmark of irrational exuberance. That function is in abeyance while rising rates make bears of us all.
Air Liquide: gas group has room for expansion
Near-term outlook is gloomy but company’s geographical and product diversity provides some comfort
As a large supplier of industrial gases, France’s Air Liquide cannot escape the ebbs and flows of world economic forces. The near-term outlook is gloomy, particularly for a group based in Europe, where the threat of a recession weighs heavily on shares. A downturn in industrial production will hit demand for its products.
As if to avoid intruding into the private grief of customers, Air Liquide tactfully referred to a “complex macroeconomic environment” in a third-quarter sales update. The key question for investors, as with any mature business these days, is “how defensive is this company?”
Industrial gases is a concentrated industry. That should help Air Liquide pass on cost increases. Exposure to a European manufacturing sector threatened by energy shortages is a bigger problem. The effects of that could take time to emerge. Air Liquide contracts are sometimes as long as 20 years.
Geographical and product diversity provides some comfort. The revenues of the predominant gas and services division were up 7.2 per cent at €7.9bn in the third quarter. In the Americas sales grew almost 13 per cent and more than a tenth in Asia-Pacific.
In the latter, sales to the electronics business helped. Antagonistic pushes by China and the US for chip self-sufficiency should expand Air Liquide’s market.
Air Liquide, whose group net profit rose 5.3 per cent to €1.3bn at the half-year stage, is diversifying its product range, investing €200mn in hydrogen production in China. The gas has a promising future as an energy storage and transport medium, but still has some time before becoming fully commercial.
Shares in Air Liquide trade on an enterprise value to ebitda multiple of about 13 times, a little below rival Linde. This historically German business is pulling its Frankfurt listing in favour of New York.
Air Liquide’s stock has dropped this year, while outperforming the Stoxx 600 industrial goods index. Like some gases it will remain volatile, but the business itself has medium-term scope to expand.
Russia conducts first nuclear weapons drill since its invasion of Ukraine
Military exercises heighten western fears that Moscow is fabricating a pretext to escalate faltering campaign
Russia conducted its first major nuclear drills since the start of its war on Ukraine and President Vladimir Putin made unfounded claims that Kyiv was seeking to develop a “dirty bomb”, as Moscow continued to ramp up the rhetoric over possible nuclear use in the conflict.
The Russian armed forces on Wednesday practised what defence minister Sergei Shoigu called a “mass nuclear strike with strategic attack forces in response to a nuclear attack by our adversary”, as Putin monitored events via videoconference from the Kremlin.
Addressing security chiefs from a group of ex-Soviet countries after the exercises, Putin said “geopolitical confrontation has sharply increased” and accused the US of using Ukraine as a “battering ram” against Russia.
He repeated claims, without providing evidence, that the US had made Ukraine a “test site for military biological experiments”, complaining that the west was “pumping it up with weapons” and ignoring “provocations” using a dirty bomb, a conventional explosive carrying radioactive material.
Kyiv has vehemently denied the claims and said the Kremlin’s aim was that the spectre of nuclear war would pressure Ukraine’s western backers to accept a peace deal on Russia’s terms.
Ukraine’s defence minister Oleksiy Reznikov said he was “absolutely sure” that Putin’s nuclear rhetoric was part of the “blackmailing of our western partners”, meant to discourage them from providing further weaponry to Kyiv.
Russia’s “Grom” drills tested the three parts of Russia’s nuclear capabilities: the RS-24 Yars intercontinental ballistic missile, the missile-carrying K-114 Tula submarine, and two Tu-95 long-range strategic nuclear bombers.
The drills are taking place alongside Nato’s annual nuclear forces exercise, which the alliance has said is designed to ensure that the western nuclear deterrents are “safe, secure and effective”.
Nato’s “Steadfast Noon” drills, which test airborne nuclear forces but no live-fire elements, began this month and will run until October 30 in Belgium, the UK and over the North Sea.
“Nato will not be intimidated or deterred from supporting Ukraine’s right to self-defence,” Nato secretary-general Jens Stoltenberg said on Wednesday, a day after rejecting suggestions that the two nuclear drills running concurrently could further heighten already fraught tensions over the war.
“It would have sent an absolutely wrong signal if then suddenly we cancelled that exercise. We’ve also been transparent about the fact we’re conducting these exercises, and it was planned long before the Russian invasion of Ukraine,” Stoltenberg said a day earlier.
Brigadier General Patrick Ryder, the Pentagon press secretary, said Russia had notified the US about the drills. “This is a routine annual exercise by Russia,” he said, adding that “in this regard, Russia is complying with its arms control obligations, and its transparency commitments to make those notifications”.
The Russian exercises come amid heightened nuclear rhetoric that western countries fear is an ominous attempt by the Kremlin to fabricate a pretext to escalate Putin’s faltering eight-month invasion of Ukraine.
Ukraine’s counteroffensive continues to inflict humiliating setbacks on Russia’s military, pushing Putin to dial up the rhetoric around the use of nuclear weapons.
Russia held the previous exercise in February just days before Putin launched his invasion of Ukraine and warned the west of “consequences you have never encountered in your history” if it tried to stop him.
Last month, he said Russia would use “all the means at our disposal” to defend itself after annexing four regions of Ukraine and warned that the US created “a precedent” when it dropped nuclear bombs on two Japanese cities at the end of the second world war.
Since then, Ukraine has continued to claw back territory Putin has only just claimed as part of Russia and closed in on Kherson, the only regional capital Moscow has captured throughout the war.
The Grom drills followed calls by Shoigu to his counterparts in China and India, where he repeated the dirty bomb claims. These calls followed similar warnings he made over the weekend to the defence ministers of the US, UK and France — Nato’s three nuclear powers — as well as Turkey, which does not have nuclear weapons but has sought to carve out a role as a mediator in the war.
Ukraine believes Putin has not abandoned his goal to essentially destroy the country in its current form and that he was not prepared to negotiate with Kyiv in good faith.
Russia has left swaths of Ukraine without power after stepping up air strikes on the country’s critical infrastructure facilities such as power plants.
Kyiv had pleaded for help to combat Russia’s onslaught from cruise missiles, air strikes and Iran-made drones. Ukraine is set to receive its first batch of Nasams air defence systems from the US, the most sophisticated air defence system provided to Ukraine so far, according to manufacturer Raytheon.