A Russian debt default, the first stage of which could arrive as soon as this week, sounds, in theory, like a major financial event. After all, the last time Russia defaulted – indeed, the only other time since the Bolshevik revolution more than a century ago – was 1998 and chaos was a genuine possibility.

Long-Term Capital Management, an enormous and already-ailing hedge fund, couldn’t handle the explosion in volatility and the general flight to safety in financial markets. Within a few weeks, the US Federal Reserve had to strong-arm 14 Wall Street banks into agreeing a $3.6bn bailout of LTCM to prevent a wider meltdown. The Fed was probably right to fear contagion: LTCM was absurdly over-extended via leverage, and half of Wall Street was over-extended to it.

Thankfully, no such equivalent excitement should follow if Russia goes ahead with its threat-cum-warning to pay investors from “hostile” countries in roubles when a $117m coupon on two dollar-denominated sovereign bonds falls due on Wednesday. Such an action would be a clear default, experts agree: if the bonds specify a payment currency, as they seem to do on this occasion, you can’t choose a different one. Once the 30-day grace period has expired, default becomes formal.

From a contagion perspective though, size is the most important factor. Thinktank Capital Economics calculates that the overall size of Russian foreign currency sovereign debt held by non-residents is only about $20bn, which is not much in a global context. Even if one adds possible defaults to foreigners on domestic bonds, one only gets to $70bn. Argentina defaulted on slightly more in 2020 and didn’t cause a global financial earthquake.

There are two possible risks around the generally relaxed view, adds Capital Economics, and neither can be ignored. First, a single bank or important institution could have an out-sized exposure to Russian sovereign bonds. Yes, concentration of risk also matters. It is a close cousin of correlated risks, which was what felled LTCM.

Second, the stakes would become more serious if large Russian corporates, such as Gazprom and Rosneft, started defaulting; their external debts are about four times larger than the sovereign’s, says the thinktank.

So far, there’s no sign of corporate defaults, but it must be a possible next move by Moscow as sanctions bite and a large portion of foreign reserves remain frozen. But we’re not there yet, and lenders cannot claim there’s no time to prepare.

The future of Japan Tobacco in Russia

Last Friday British American Tobacco (BAT) reversed its decision to continue selling cigarettes and other nicotine products in Russia. That leaves Japan Tobacco International (JTI), whose brands include Camel, Winston, Silk Cut and Benson & Hedges, as the main outlier among big western tobacco firms.

Japan Tobacco’s position is similar to the one BAT initially adopted before abandoning two days later. The Tokyo-based group said last Thursday that its JTI subsidiary will suspend new investment and marketing, but would carry on producing and distributing in Russia. Its market-leading Russian operation is big: four factories and 4,000 employees.

There was, though, a hint that the company wasn’t entirely confident about sticking with Russia. “JTI cannot exclude the possibility of a suspension of its manufacturing operations in the country,” continued the statement.

So far, however, a manufacturing suspension hasn’t happened, despite a passionate appeal by JTI employees in Ukraine for a stronger response. “Please do not make us feel ashamed of being part of the JTI One Team,” begged an open letter a fortnight ago.

The moral case for tobacco companies exiting Russia is surely more compelling than for virtually any other industry. Cigarettes are almost the definition of a consumer inessential and excise duties go directly to Kremlin coffers. After BAT’s U-turn, JTI’s position looks untenable. What is it waiting for?

Suits follow doughnuts out of the inflation basket

The boffins at the Office for National Statistics, presumably clad in grim “smart separates”, have declared that the men’s suit is no longer a suitable product to help in the measurement of inflation. Doughnuts, oddly, have also got the chop from the basket of representative goods; apparently, we’re feasting on multi-packs of cakes these days.

The death of the doughnut is no great loss, but it’s hard to believe the men’s suit will go without a fight once working-from-home effects fade. Think of the suit’s return to the ONS basket as an unofficial marker of the economy’s recovery to post-Covid normality. Back within 18 months is the prediction here.