Archive - Mar 2014

The FOMC is now meeting for the first time with Janet Yellen as Chair. Goldman's US team expects the FOMC to deliver an accommodative message...alongside a continued tapering of asset purchases. However, they note, their market views here are likely to shift little in response, as much of that dovishness is arguably already priced, particularly in US rates. SocGen notes that "qualitative guidance" will probably consist of two components: the FOMC’s forecast for the fed funds rate (aka “the dots”) providing a baseline scenario, and a descriptive component signalling the elasticity of this rate path to the underlying economic outlook. SocGen also warns that this transition is worrisome for inflation in 2015. But BofA suggests this is not  problem as The Fed will indicate the US economy "lift-off" in late-2015 will save us all.

While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters.

Just days before the annexation of Crimea, while promising that they would not instigate actions to antagonize the West, Russia launched a massive unscheduled military drill. Now, with Crimea under their pro-Russian forces control, and despite promises that Putin seeks to go no further than Crimea, the Wall Street Journal reports that Russia will begin unscheduled military aviation exercises in regions bordering Ukraine. The crews will be practicing "actions during airstrikes" on enemy military targets, communications jamming, air defense and attacks by military jets, the spokesman said.

It only makes sense that now that Crimea is officially Russian territory once again, that the Russians would do with it as they see fit. Which they did. Overnight Russian troops and unarmed men stormed Ukraine's naval headquarters in the Crimean port of Sevastopol and raised the Russian flag in what Reuters described as "a tense but peaceful takeover that signals Moscow's intent to neutralize any armed opposition." Russian soldiers, and so-called "self-defense" units of mainly unarmed volunteers who are supporting them across the Black Sea peninsula, moved in early in the morning and quickly took control. But nowhere is the resignation within Ukraine's acting political leadership more evident than in a statement just uttered by potential presidential candidate and former boxer, Vitali Klitschko:

UKRAINE GOVT SHOULD WITHDRAW TROOPS FROM CRIMEA, KLITSCHKO SAYS

More appeasement of Putin: will it result in the annexation of east Ukraine? Surely. The only question is when.

Remember when in what at the time was the ultimate #Ref! moment, in January UPS missed and guided lower due to a, drumroll, surge in business resulting from "an unprecedented level of online shopping that included a surge of last-minute orders." Yes, not only was it the weather's fault the company had a surge in business and shipments, but the company actually missed and guided lower due to this surge? Moments ago it was FedEx' turn to miss Q4 revenues and earnings across the board, and to guide lower due to, what else, the weather.

• How Putin Parried Obama's Overtures on Crimea (WSJ)
• West Readies Tighter Sanctions After Russia Seals Crimea Claim (Bloomberg)
• Putin says U.S. guided by 'the rule of the gun' in foreign policy (Reuters)
• JPMorgan Said to Agree on Commodities Unit Sale to Mercuria (BBG)
• Short Sellers Target Chinese Developers as Rout Deepens (BBG)
• HFT finally under the spotlight: High-Speed Trading Firms Face New U.S. Scrutiny (WSJ)
• Chinese Dollar Bond Investors Demand Higher Yields After Default (BBG)
• According to Joe LaVorgna it's the snow's fault: Deutsche Bank Said to Plan Job Cuts at Investment Bank (BBG)
• Israeli airstrikes kill 1 Syrian soldier, wound 7 (AP)

As Putin rejoices at his new-found wealth in Crimea after it was annexed (in a duff referendum where there was either ‘now’ or ‘later’ up for grabs to join the Russian Federation), the USA is wiping its tears with things that are closer to home and causing a great deal more grief than far off Ukraine. 

In an overnight session that had little in terms of macro and news flow, the most notable event was that the Dollar-Renminbi finally crossed above 6.20 which as a reminder is the suggested "max vega" point beyond which even more max pain lies for levered accounts long the Yuan. However, in a world in which nothing is discounted and in which no news matters, the "market" broadly ignored this significant development (which as we explained further yesterday means an accelerated unwind of Chinese Commodity Funding Deals, and a potential drop in global commodity prices), and eagerly awaited today's non-event of an FOMC conference, where nothing new will be announced save for the novelty of it being Yellen's first appearance before the press as the head of the Fed. And of course the Fed will almost certainly scrap the 6.5% employment threshold, as the FOMC scrambles to make the economy appear worse than it is reported to be, in a stark reminder that the biggest optically manipulated tool meant to boost confidence in the recovery was nothing but a number meant to serve political purposes.

Well over a week after the disappearance of flight MH370 - which now is the longest official disappearance of a modern jet in aviation history - with no official trace of the missing plane yet revealed, the investigation, which as we reported over the weekend has focused on the pilots and specifically on Captain Zaharie Ahmad Shah, earlier today revealed that on his home-made flight simulator had been loaded five Indian Ocean practice runways, among which those of Male in the Maldives, that of the US owned base at Sergio Garcia, as well as other runways in India and Sri Lanka - all notable runways as all are possible landing spots based on the flight's potential trajectories. The Malay Mail Online reported, "The simulation programmes are based on runways at the Male International Airport in Maldives, an airport owned by the United States (Diego Garcia), and three other runways in India and Sri Lanka, all have runway lengths of 1,000 metres."

A new era is dawning in Chinese foreign policy as the country’s economic growth enables it to move from past timorousness in declaring itself a global leader and a relative inability to defend its interests, to one in which Beijing can seek adjustments in the security environment it has faced for the last sixty years. In the Chinese-language media, politicians are increasingly talking of China as a great power. Yet Russia’s invasion of Ukraine has put Beijing’s new foreign policy to the test and raised questions about the extent of China’s global role. China is close to meeting all the measures of what defines a global great power: political, economic, and military might with a global reach. But it does not appear to act like a great power in terms of its contribution to international leadership during conflict situations such as in Ukraine. Instead we repeatedly only see Beijing being assertive when it comes to defending its own narrow interests.

Nearly 40% of China lives off of $2 a day. Your average college graduate in China makes just $2,500 per year. In an economy such as this, a rise in prices in costs of living can be devastating for the population.

After trading well above the Dow at last year's peak (and equal with it at 2013 year-end), the Nikkei 225 is now almost 2000 points below the level of the Dow - a 13-month low. Trading not far off the EM-crisis lows of January, Japanese stocks are fading as JPY can't sustain any offer and carry-trades are unwound. Not helped by yet another in a long and illustrious list of mssed trade balance figures since Abe took the helm. Elsewhere in Asia, USDCNY traded up to almost 6.20 (the Maginot line for many derivatives trades) and does not look like the PBOC has it under control and copper has dumped from earlier US exuberance; iron ore is flat; and Chinese stocks are down (along with US futures fading modestly).

Something very strange is going on at the US treasury.

From "contrarianism takes courage" to "expect bullshit," Doug Casey's nine secrets for successful speculation are principles everyone can learn from.

A few select headlines from the day that made us, well, wonder...

• DONETSK GOVERNOR (AND BROTHER) HAD MOAT DUG OUT ON RUSSIAN BORDER (and filled with crocodiles?)
• CHINA SHOULD LOOSEN RESTRICTIONS OVER HOME PURCHASES: SEC. NEWS (but, but, but the reforms?)
• BEIJING TO SPEND 20M YUAN TO CHANGE WEATHER TO CUT SMOG: DAILY (winning the war on weather and hence the economy)
• PUTIN SPOKESMAN SAYS UKRAINE FORCES MUST CHOOSE SIDES: BBC (hhmm, tough decision)
• CARNEY SAYS LOW RATE ENVIRONMENT IS CONDUCIVE TO COMPLACENCY (and water is wet and we'll keep doing it)
• BANK OF CANADA: HARD TO BELIEVE THAT RECENT ECONOMIC SOFTNESS IS ALL DUE TO THE WEATHER. (wait what?)
• ESTONIA'S PRESIDENT ILVES SAYS EU RESPONSE "SHOULD NOT BE ABOUT THE PRICE OF GAS" (what else is there?)
• UKRAINE MAY SEEK COMPENSATION FOR CRIMEA ASSETS: PETRENKO (we don't recognize it unless you pay us?)
• MERKEL SAYS NO CHANGE IN RUSSIA G-8 STATUS FOR NOW (nope, they'd have to really cross the red line)
• PUTIN: RUSSIA WILL NEVER SEEK CONFRONTATIONS IN WEST, EAST (fingers crossed?)

Has the world gone totally mad?