It took only a 60 USDJPY pip overnight ramp to send US equity futures 20 points off the overnight lows in the immediate aftermath of the Crimean referendum, which from a massive risk off event has somehow metamorphosed into a "priced in", even welcome catalyst to buy stocks. The supposed reasoning, and in a world in which Virtu algos determine the price action of the USDJPY from which all else flows based solely on momentum we use the word reasoning "loosely", is that there was little to indicate that the escalation between Russia and Ukraine was set to accelerate further. As we said: an annexation is now seen as risk off, something even Goldman appears unable to comprehend (more on that shortly). In macroeconomic news, European inflation - at least for the Keynesians - turned from bad to worse after the final February inflation print dropped from the flash, and expected, reading of 0.8% to just 0.7% Y/Y, a sequential increase of 0.3% and below the 0.4% expected, confirming that deflationary forces continue to ravage the continent. The only question is how soon until Europe comes up with some brilliant scheme that will help it join Japan in exporting its deflation.
When S&P 500 futures opened they tumbled ten points very quickly along with JPY crosses. This pressed US stocks to their lowest intraday level since 2/24, hovering at key post-correction lows support. However, thanks to an impressive liftathon in JPY-carry, S&P futures rallied all the way back to green - until China opened with its wider trading bands slowing carry-traders. Gold prices surged (as stocks fall) then fell back (as stocks rallied) and are now unchanged. Key overnight will be Europe's reaction as Germany appeared to edge away from sanctions against Russia while Barroso and Van Rompuy were all-guns-blazing.
If one listens to the endless rhetoric of hollow threats and escalating war of words between Russia and DC, one thing should be clear by now: with the passage of the Crimean referendum, accepted (not to mention planned) as perfectly normal by Moscow and blasted as illegal by the West (since it is the former whose troops are in the Crimea, not the latter) then Putin has certainly crossed the Rubicon this time especially since as it was reported earlier, Crimea will formally apply to join Russia tomorrow. Surely, if nothing else, than at least the, drumroll, sanctions must be coming - after all if there is no forceful response now when Putin has called the Western bluff, the West may as well not bother. Well they very well may be... in about a week. The reason: Congress is now in vacation until March 24, so there will be at least one week before any response to the formal Russian annexation can be debated, let alone enacted into law.
While Goldman is quickly down-playing the decision by the PBOC to double the size of the daily trading bands for USDCNY to +/2.0% as a risk-off event (just as it was in 2012 - but blame that on Greece as cause rather than symptom), BofA is a little less sanguine about the move noting a more volatile CNY/USD without trend appreciation will deter hot money inflow and perhaps will result in some unwinding of previous inflow. With 1-month volatility spiking to over 4% (its highest in over 2 years), the move is sure to remove some carry traders as risk-rewards break down on their leveraged positions.
While Jim Bullard has admitted that "tapering is tightening", the rest of the Fed remains adamant that reducing the flow and promising ever-lower for ever-longer rates will make up for the supply of portfolio-rebalancing free money. One glance at the following charts suggests that the bulls are losing faith but the dearth of bears leaves the low-volume levitation of US equities standing on increasingly fragile foundations.
Another day, another drawn out, pointless conversation between Obama and Putin, which will do nothing to prevent the imminent annexation of Crimea, whose people have voted and decided to join Russia.
While we thought Venezuelan President Maduro was doing well in the verbal combat sparring match of global diplomacy, and of course Russian President Vladimir Putin holds the lead in proclaimed "despotism", it is the corruption-probe bedraggled Prime Minister of Turkey that is head-and-shoulders above the rest of the world's leaders in his insults. As Zaman reports, not a day goes by when Erdogan does not spew forth some insult-infused speech to rally his cheering supporters and here are his Top 15...
As we explained in great detail recently, the abundance of so-called cash-on-the-sidelines is a fallacy, but even more critically the we showed the belief that these 'IOUs of past economic activity' would immediately translate into efforts to deploy them into future economic activity is also entirely false. Simply put, there is no relationship between corporate cash and subsequent capital expenditure, nor is the level of capital expenditure even well-correlated with the level of real interest rates. At this point, as John Hussman explains, it should be clear that the mere existence of a mountain of IOUs related to past economic activity is not enough to provoke future economic activity. What matters instead is the same thing that always matters: Are the resources of the economy being directed toward productive uses that satisfy the needs of others?
With US manufacturing jobs down almost 40% from their 1980s peak, proclaiming the last few years marginal increase a "manufacturing renaissance" is more statistical noise, smoke, and mirrors than fact. That is a problem for an administration (and entire genre of Keynesian dreamers) that rely on this sector to prove how effective they have been with stimulus (and not just pulling demand so colossally forward that the future is bleak). How to fix this apparent dilemma between policy talking points and factual data? Easy - as WSJ reports, change the definition of "manufacturing."
Markets are showing increased signs of investor anxiety, warns BofA's Macneil Curry. The Friday breakout in the VIX Index says that this anxiety will likely persist into next week. Indeed, Curry adds, the VIX has based from its highest levels in over a year suggesting that investors are more susceptible to bad news and defensive behavior than at any time in the past 12 months. Several markets look particularly susceptible to this change in sentiment.
Crimea Will Formally Apply To Join Russia Tomorrow After 95.5% Support Referendum; US, UK, EU Reject ResultsSubmitted by Tyler Durden on 03/16/2014 - 14:12
UPDATE: While earlier exit polls indicated strong support, the preliminary results are now being announced:
*CRIMEA TO JOIN RUSSIA BACKED BY 95.5%: PRELIMINARY RESULTS
*CRIMEA TO REMAIN IN UKRAINE BACKED BY 3.5%: PRELIMINARY RESULTS
With a voter turnout (79.09%) that exceeded every US Presidential election since 1900, the people of Crimea have spoken. Ukraine's leaders have called up 20,000 men for a newly-created National Guard as despite the so-called "truce" Russian APCs and Tanks are rolling. The White House is already out rejecting the vote (before the final results are released) as are the EU, UK, and France.
"The Supreme Soviet of Crimea will make an official application for the republic to join the Russian Federation at a meeting on March 17," Sergiy Aksyonov said in a tweet.
*PUTIN TOLD OBAMA CRIMEA VOTE FULLY MET INTERNATIONAL NORMS
Crimean Deputy Prime Minister Rustam Temirgaliev has told RIANovosti that the region will abandon Ukraine's Hyrvnia:
*CRIMEA TO SWITCH TO RUSSIAN RUBLE APRIL 1: RIA NOVOSTI
This is not a total surprise as Reuters reported the Crimean Deputy PM stating "we are ready to introduce a ruble zone," a week ago.