Archive - Mar 3, 2014

Catherine Ashton, senior representative of the European Union for foreign affairs and security policy has announced an "extraordinary" press conference...

Even as the Fed laments that inflation as measured by either the hedonically adjusted CPI, or the PCE deflator measure (which on any given month is whatever a seasonal adjustment excel model says it is), is persistently below its long-term target of 2%, one component of the broader CPI basket has quietly continued risen to new multi-year highs. That would be the so-called owners’ equivalent rent (OER), which is the biggest component of the CPI, and measures imputed costs of renting one’s own home: it is currently the highest it has been since 2008. But what does this mean for broad inflation? Read on to find out why it is precisely the soaring rent, courtesy of the Fed's latest housing bubble, that means inflation will remain subdued for years to come.

Perhaps surprisingly, Germany's DAX index was the weakest in Europe today as the Russia-Ukraine debacle escalates, underperforming high-beta "safe-havens" like Spain and Italy (which also fell rather notably). Despite the 2.5% to 3% declines across all major European equity markets, sovereign bond spreads barely budged! Seriously, Italian and Spanish bond spread rose a mere 5bps on the day. European banks collapsed 3.6%, its biggest drop in 6 months. EURCHF continues to collapse, now at 14 month lows (-200 pips today) as 2Y Swiss rates close at -11.4bps (the lows of 2014).

Despite near record low bond yields, a surging stock market and a leadership proclaiming victory, the people of Spain appear upset at the IMF's appearance in their nation. Around 2,000 people protested in Bilbao today as the IMF (member of the infamous Troika) overturning cars and windows, graffiti-ing "IMF Out!" and held banners saying "Troika Go Home", denouncing economic policies that welcome austerity measures and the introduction of cuts. While Christine Lagarde, who attended, lauds the progress (and demands more); perhaps it is the record unemployment, record suicides, record homelessness, and record loan delinquencies that tarnish the rose-colored glasses that 'the powers that be' would prefer the general public to see the world through.

Yields on Belarus government bonds have surged to near 10% this morning (up 130bps) and the "managed" Belarus Ruble has leaked further to new record lows against the US Dollar. One can't help but wonder what message the Russian actions are sending to other Eastern European nations but one thing is clear, capital is not comfortable there as bonds see the biggest price drop in almost 3 years.

The technicals break with the news!

Gold prices are up almost 2% today, the biggest single-day jump in over 4 months as spot prices cross $1,350 for the first time since October 2013.

Following last month's massive miss on US manufacturing, ISM modestly beat excpectations today (53.2 vs 52.3 exp.) but remains near 8 months lows. This is still the largest 2-month drop since August 2011. New orders rose but production plunged and employment was unchanged as inventories surged. Respondents fell back on blaming the weather with "conservative optimism" a standout. In addition, construction spending beat expectations in January (and December) so it seems the weather did not affect that?

Just out from Reuters:

• INTERFAX UKRAINIAN DEFENCE MINISTRY AS SAYING  RUSSIAN FLEET HAS GIVEN UKRAINIAN FORCES IN CRIMEA UNTIL 0300  GMT TOSURRENDER OR FACE STORM

It appears Putin is still unaware of the "costs" he is facing.

Moments ago GM reported that February total sales in February dropped 1% Y/Y to 222,2014, beating expectations of a 7.7% drop (if the same beat was not matched by GM's key competitor Ford, whose February sales dropped 6.1%, below the 5.3% expected, and Volkswagen whose US sales tumbled 13.8%). The bounce was largely thanks to Buick sales which posted an 18.8% increase in February. However, the actual sales were largely irrelevant. What was notable is the following number: 805,769. This is the number of units in dealer inventory at month end. This was an increase from the 780,140 in January and is the largest ever channel stuffing print yet recorded by the post-bankruptcy GM in history.

Having earlier blasted John Kerry for his "lack of analysis" of the Ukraine situation and noted that China "understands" the Russian perspective, the Russian foreign ministry has issued a further statement defending its actions in Crimea: "...through the fault of the Bandera-type groups and other ultra-nationalistic forces, the measures we are taking are adequate and absolutely lawful."

VIX has surged this morning above 16% - its highest in almost a month. This shift is well beyond the equity move for now as investors seek protection for their stocks and shift into bonds and gold (with the latter at 2014 highs).

It appears the bank runs - or desparate dash for cash - in Ukraine have escalated. We noted that Russian banks had already limited access but now Unicredit has issued a statement "temporarily limiting operations on cash withdrawal in ATMs, in order to provide all the clients with an access to cash money." The decision, they stress, is a temporary one (like Cyprus capital controls?) and will be cancelled with the "normalization of the situation."

Moments ago the BEA disclosed the January personal income and spending data, which surprised to the upside on both sides: Personal Income rose 0.3% in January, on expectations of a 0.2% increase, while spending roared up by 0.4% well above the 0.1% expected. Great news right? Well, not exactly. What happened in January to account for this spending spree? The chart below of spending on Services should explain it.

U.K. natural gas jumped the most in more than 16 months and was 2.3% higher to $4.72 on supply concerns. Wheat and corn surged 4.3% and 3.3% respectively, also on supply concerns. Should relations between Russia and Western nations deteriorate further, it will have consequences for already vulnerable economies and lead to increased safe haven demand.