Archive - Jun 2014

Considering that even German publication Spiegel is now reporting that that "Vladimir Putin has won the propaganda war over Ukraine and the West is divided", it is hardly surprising that western coverage of the Ukraine civil war has ground to a halt: without a coherent agenda, the western propaganda machine is unsure of just what the right angle is in its coverage of Ukraine events, which is why as in the case of last summer's Syrian conflict coverage, the "free media" has simply decided to push back events in east Ukraine to the page 8, if cover it at all. Unfortunately, for the locals in the separatist regions, while the west may now be simply closing its eyes to the consequences of its intervention the civil war is all too real and deadly: as RIA reports, there were multiple casualties after a fighter jet attack struck the eastern city of Luhansk. "The assault was followed by heavy gunfire on the ground, causing panic among civilians."

Will volatility become a policy tool? The PBOC decided that enough was enough with the ever-strengthening Yuan and are trying to gently break the back of the world's largest carry trade by increasing uncertainty about the currency. As Citi's Stephen Englander notes, this somewhat odd dilemma (of increasing uncertainty to maintain stability) is exactly what the rest of the world's planners need to do - Central banks will need more FX and asset market volatility in order to provide low rates for an extended period... here's why.

While we await today's US Manufacturing ISM number (expected to rise from 54.9 to 55.5), here is how some 23 of the world's most important countries fared in May in their manufacturing data. In brief: as the below table shows, out of the 23 countries that have reported so far, 8 reported improvements in their manufacturing sectors in May, while 15, or two-thirds, recorded a weakening in mfg data from April. That's the bad news, and an indication that the latest upswing in the global manufacturing economy may be ending. The good news: despite the modest decline, there were only 7 countries "contracting" or in negative territory (below 50) and 16 in positive. In particular, France, Korea, and Norway moved from expansion to contraction.

With Eric Holder suddenly playing hardball with the banks (most notably not US banks), it has not gone unnoticed among the largest European newspapers. The potential $10 billion penalty for BNP Paribas - France's largest bank - for alleged dealings with a sanctioned Iran has been called a "masterful slap," by Le Monde and Le Figaro said the U.S. was making an example of BNP to deflect criticism it had been "lenient with the American banks responsible for the financial crisis." This could make for an awkward week for Obama, not only facing Putin as he visits Europe to celebrate D-Day but as the allies themselves turn on him with France's Hollande likely to raise the matter and, as Bloomberg reports, newly elected National Front party called on the French government to "defend the national interest" in the case.

This week's busy calendar starts off with today’s global PMIs and ISMs. On Tuesday, President Obama begins a four day European trip ahead of the G7 meeting which starts on Wednesday. This G7 meeting is replacing the G8 meeting that was originally scheduled in Sochi but was cancelled after Russia’s annexation of Crimea. Tuesday’s data docket is important with Euroarea data releases including inflation and unemployment expected to further cement the ECB’s resolve in easing policy come Thursday. Wednesday features the global services ISMs and PMIs. Other data releases scheduled for that day includes the ADP employment report, which will provide an important preview to Friday’s NFP, and US trade. The Fed releases its Beige Book on Wednesday too and the second estimates of Euroarea GDP will be published on Wednesday as well. Apart from the ECB on Thursday, we also have the BoE policy meeting.

Reuters reports that UKIP's Nigel Farage has held talks with the leader of Italy's 5-Star movement, Beppe Grillo, to explore the idea of the two parties teaming up in the European parliament. Farage repeated previous comments that he would not work with France's National Front leader Marine Le Pen, who this week struck a deal with four other Euro-skeptic parties.

• Unstoppable $100 Trillion Bond Market Renders Models Useless (BBG)
• Afghan president fumes at prisoner deal made behind his back (Reuters)
• Spain to Unveil $8.6 Billion Stimulus Package (AP)
• How fracking helps America beat German industry (Reuters)
• Obama to Urge European Allies to Stay Tough on Russia (WSJ)
• Frenchman 'admits' Brussels shooting in video (AFP)
• Heloc Payment Jump to Take Bite Out of Consumer Spending (WSJ)
• Obama Said to Propose Deep Cuts to Power-Plant Emissions (BBG)
• Lehman Lesson Lost as Bank Lobby Gains Clout (BBG)
• WSJ reports that WSJ reporting on Icahn insider trading probe may have killed it (WSJ)
• KKR liquidates former Goldman Sachs traders-run hedge fund (Reuters)

In a surprise announcement, several hours ago Spain's Prime Minister Rajoy declared that Spain's King Juan Carlos is abdicating after almost 40 years on the throne and his son Prince Felipe will succeed him. "His majesty, King Juan Carlos, has just communicated to me his will to give up the throne," Rajoy said. "I'm convinced this is the best moment for change."

It took a precisely 0.1 beat in the Chinese Manufacturing PMI over the weekend (50.8 vs Exp. 50.7) for the USDJPY and the Nikkei to forget all about last week's abysmal Japanese economic data and to send the Nikkei soaring by 2.1% to its highest print in 5 months. Subsequent overnight weakness from Europe, where the Eurozone Final May Manufacturing PMI dropped again from 52.5 to 52.2, below the 52.5 expected, served simply to push bunds higher back over 147.00, if not do much to US equities which as usual continue their low volume "the music is still playing" melt-up completely dislocated from all newsflow and fundamentals (because just like over the past 5 years, "there is hope").

As Senator Ron Johnson so appropriately blasted, "I'm not sure sanctions had any effect whatsoever other than, you know, the Russians have mocked them," and so it is that the Treasury's (little heard of) "Terrorism and Financial Intelligence" division is preparing to unleash its most deadly weapons yet - an arsenal of financial weaponry aimed at hitting foreign adversaries with limited cost to allies. It appears clear that while the US dropped speech-bombs and sanction-mines, proclaiming the disastrous economic significance of these efforts, Russian stocks soared (vastly outperforming the US) and the Ruble strengthened... and so - as undersecretary David Cohen tells the WSJ, "What we've done over the past 10 years is to create a new method of projecting U.S. power..." e.g. sell non-US stocks (thus buy US stocks).

The unmitigated gall...

Are China and Russia moving toward to a formal alliance? Some believe that a new China-Russia alliance is now emerging and this will eventually lead to a multi-polar world order. Others disagree by pointing to problems in China-Russia relations such as historical mistrust, the lack of a common threat, and conflicting interests in Central Asia. However, the U.S. should be careful not to make another strategic mistake that would only facilitate a formal China-Russia alliance.

US Treasury yields are on the verge of basing and resuming their long term bear trends, warns BofAML's MacNeil Curry, as Treasury volatility (MOVE Index) appears poised for a reversal higher...