Archive - Jul 17, 2014 - Story

That didn't take long for the Ukrainian government to know exactly what happened:

*UKRAINE REBELS SHOT DOWN MALAYSIAN PLANE, GERASHCHENKO SAYS; But
*DONETSK SEPARATISTS SAY NOT INVOLVED IN PLANE CRASH: INTERFAX

All 280 passengers and 15 crew were killed in the crash. The Malaysian Airlines jet was shot down by the BUK Missile System according to Interfax.

First it was MH-370. Now, it appears tragedy has struck again, this time on Malaysian Airlines flight MH-17, on route from Amsteram to Kuala Lumpur, which disappeared from radar moments ago and was reportedly shot down over Ukraine. While there is nothing yet officially confirmed by the carrier, the radar tracked path of the airplane is shown below.

Remember when Ukraine was fixed and you could BTFATH as no geopolitical concerns could ever harm US equity markets... well that just changed... News that a Malaysian Airlines passeneger jet carrying 280 passengers was shot down in Ukraine has sparked major derisking across stocks and slammed bonds to the low yields of the day. Gold and Silver are jumping and the USD is fading.

Update: so yes, it was shot down.

• MALAYSIAN PASSENGER JET WAS SHOT DOWN AT 10 KM ALTITUDE: IFX

While we hope it is a horrific accident, and has yet to be officially confirmed by Malaysian Airlines, the timing is oddly coincidental. From Bloomberg.

• MALAYSIAN PASSENGER JET WAS SHOT DOWN AT 10 KM ALTITUDE: IFX
  
• INTERFAX SAYS PLANE MAY HAVE CRASHED NEAR RUSSIA-UKRAINE BORDER
• MALAYSIAN BOEING 777 MAY HAVE CRASHED IN UKRAINE: INTERFAX

The crash happened near Donetsk and the plane had 280 passengers on board. The question is - accident? Or was it shot down by Russia or Ukraine as a provocation.

• RUSSIAN U.N. AMBASSADOR VITALY CHURKIN SAYS RUSSIA DID NOT SHOOT DOWN UKRAINIAN WARPLANE
• RUSSIAN DEFENCE MINISTRY CALLS KIEV'S ACCUSATION IT SHOT DOWN UKRAINIAN WARPLANE "ABSURD" - INTERFAX
• RUSSIA SAYS ETHNIC CLEANSING HAPPENING IN UKRAINE: RIA
• RUSSIA DOESN'T WANT WAR W/ UKRAINE, RIA CITES SECURITY COUNCIL
• RUSSIA SAYS U.S. POLICY PUSHES RUSSIA, CHINA CLOSER: RIA

what is the source of the ongoing ramp in the S&P 500. Surely after one entire year of nothing but multiple expansion it should, at least now, be earnings, also known as fundamentals, right? Wrong. For the answer, we go to the following chart from UBS which explains that once again, and continuing the theme from 2013, in Q2 virtually all the upside in the S&P 500 has all been on the back of P/E multiple expansion!

By the magic of hopes and dreams, Philly Fed's headline index soared to cycle highs at 23.9. Smashing the 16.25 expectation, this is the highest since March 2011 (and almost the highest in the recovery cycle). This is a 4-standard deviation beat. While most of the 'current' subindices improved with new orders exploding to their highest in 10 years (really!?). Great news right? Well no - the outlook 6-months forward sees employment drop, workweek drop, and capex investment plans drop to its lowest since January...

As US equities put in their ubiquitous v-shaped recovery from any opening weakness, Treasury yields are pushing the lows of the day. 10Y Yields are back below 2.5% - the lowest in 7 weeks. AUDJPY is fully in charge of equity levitation today so far (though Russell 2000 and Biotech names mostly are notably lower and not bouncing as exuberantly as Trannies and the Dow).

Since the advance reports of layoffs at Microsoft started circulating this Sunday, the giant tech company has surged over 8%. This has raised the market cap of the behemoth by almost $28 Billion. Today we get the 'news' that Microsoft was laying off a record 18,000 employees (more than tripled the 2009 dump of 5,900 employees).That means - for all activist investors out there looking to raise MSFT share price - a $1.5 million market cap boost for each scalp, which, in other words, is the marginal "value added" of every currently employed Microsoft worker.

It seems like it was only yesterday when the first official Chinese corporate default in history (there have been many other ones in the past but all were quickly masked by the government to avoid a panic), Chaori Solar, entered the history books. Now it's time for default number in the country's onshore bond market as Huatong Road & Bridge Group, a company whose businesses includ bridge and highway construction, real estate, coal, eco-friendly construction materials and agriculture-related projects, based in the northern province of Shanxi, said it may miss a 400 million yuan ($64.5 million) note payment due July 23, according to a statement to the Shanghai Clearing House yesterday.

"Epic disaster." Those two words best explain what just happened with US housing starts and permits in June.

Yet again the fate of the US economy is left to seasonal adjustments... Non-seasonally-adjusted initial jobless claims surged over 47,000 this week to its worst in 6-months. But by the magic of PhD adjustment, this translated into 3,000 seasonally-adjusted drop from last week, beating expectations and printing near 'recovery' cycle lows. We can only imagine the adjustments needed to cope with Microsoft's layoffs. 2014 has seen the smallest percentage drop in initial claims since the crisis began.

While the news was reported earlier this week, it is perhaps notable that what was once considered the leading US tech company has also succumbed to the great "jobless" US recovery (in which the US economy is somehow adding 200K+ jobs every month even as it is firing millions). Furthermore, what was supposed to be 6,000 layoffs has just tripled to 18,000, which also happens to be the largest round of layoffs in MSFT history, surpassing the previous record of 5,800 set back in 2009.

The Russian Ruble slumped 1.6% today, its biggest drop in over 4 months as investors kneejerk-reacted to the US latest round of restricted-funding-access sanctions. The Ruble is back at 2-month lows against the USD. The bonds of several of the sanctioned companies are also breaking down with Rosneft yields up 89bps at 6.22% and Novatek yields surging to 6.44% as even though Fitch confirms these firms can manage their own cash needs through 2015, as one analyst notes, "the lack of ability to raise long-term dollar funding will become a big economic limitation for all of them." The broad Russian stock market is also tumbling, down to 2-month lows (though still notably above the US markets since sanctions began). We wonder how long before BRICS Bank steps in to provide 'temporary' funding... and just how quickly Putin's "boomerang" will hit if this selling continues.

While most news coming out of Ukraine regarding the ongoing civil war are merely propaganda designed to make Russia look bad, and hence irrelevant (and vice versa from Russia of course - the only news that matters re: Ukraine is i) what happens with gas deliveries to Europe via Ukraine and ii) the fate of the South Stream pipeline; the rest is mostly noise), it is perhaps a testament to how the global media will observe Russia's response to the latest US sanctions, and hardly improve risk appetite, that as Reuters reports a Russian jet shot down a Ukrainian SU-25 fighter plane that was on military operations over the east of Ukraine.