There are grounds for optimism about Europe’s single currency area. Yet beneath the surface of favorable sentiment towards the euro zone, the seeds of the next financial crisis are being sown. If markets connected all these dots - a weak and fragile economic recovery, the failure to break the “doom loop” between banks and sovereigns and, most importantly, scant prospect of a more secure political and economic union - the glaring disconnect between asset prices and underlying fundamentals in the euro zone would be a source of much greater concern.
US and European financials faded notably after Europe and then US unveiled new sanctions against Russia today. Most notably, the decision to sanction Russia's largest banks (and ban trading and capital markets access) has ramifications for the global financial system's stability given the increasingly inter-connected nature of the world. For that reason, we thought Bloomberg Briefs' chart of the most exposed banking systems by nation to any systemic issues in Russia would be useful.
After unleashing a 10-page report of the death and destructive economic impact they could have on Russia via sanctions, the European leaders have agreed to issue travel bans, some asset-freezes, and trade curbs on various new individuals and business entities. The Goldilocks sanctions... just enough to please Washington, not enough to infuriate Putin into 'boomerangs'.
- EU finalises Russian sanctions as BP warns of impact on business (FT)
- Geopolitical Risk Rises for Global Investors (BBG)
- Jaded Argentines brace for looming debt default (Reuters)
- In Argentina, Mix of Money and Politics Stirs Intrigue Around Kirchner (WSJ)
- Mom ‘Trusting God’ for Ebola-Infected U.S. Doctor’s Life (BBG)
- Thanks NSA: Tech Companies Reel as NSA's Spying Tarnishes Reputations (BBG)
- Goldman unit eyes foray into China amid metals financing scandal (Reuters)
- Cash out time: London’s Gherkin Tower Offered for Sale by Its Lenders (BBG)
- Apenomics strikes again: McDonald’s Japan axes profit guidance amid food safety scandal (FT)
- Do you see what happens Larry when you are the only USDJPY bid? Nomura Profit Falls More Than Estimated on Broking Slump (BBG)
An overview of the major events next week within the context of the capital markets, which could be at inflection points.
You can be forgiven for thinking that the world is a pretty terrible place right now, exclaims JPMorgan's Michael Cembalest. With 11.7% of the world's population currently at war (and a considerably larger percentage seemingly on the verge), it seemed an appropriate time to summarize the main geopolitical risk points in the world.
According to Reuters, key measures suggested by the Commission include:
- closing EU capital markets to state-owned Russian banks,
- an embargo on arms sales to Moscow,
- restrictions on the supply of energy and dual-use technologies.
- a list of 15 individuals and 18 entities, including companies, subject to asset freezes for their role in supporting Russia's annexation of Crimea and detribalization of eastern Ukraine.
Of course, since France would blow a gasket if its Mistral ship was impacted by the sanctions, and since this really is just another populist measure not intended to really punish Russia (as that would mean a prompt shut off of European gas and an even prompter slide into a triple dip recession if not outright depression), Europe promptly "detoothed" the sanctions by announcing that they would not affect current supplies of oil, gas and other commodities from Russia, diplomats said.
Following yesterday's disappointing results by Visa, which is the largest DJIA component accounting for 8% of the index and which dropped nearly 3%, while AMZN's 10% tumble has weighed heavily on NASDAQ futures, it has been up to the USDJPY to push US equity futures from dropping further, which it has done admirably so far with the tried and true levitation pump taking place just as Europe opened. One thing to keep in mind: yesterday the CME quietly hiked ES and NQ margins by 6% and 11% respectively. A modest warning shot across the bow of what may be coming down the line?
It appears the European leaders, rather than actually unleash sanctions (as the US has dictated asked), has decided to 'warn' of possible sanctions with a 10-page memo of options available to them. As The FT reports, the memo (full memo below) prepared by the European Commission and distributed to national capitals, includes a proposal to ban all Europeans from purchasing any new debt or stock issued by Russia’s largest banks and also proposes barring the Russian banks from listing new issues on European exchanges, preventing them from using London or other EU stock markets to raise funds from non-Europeans. While Germany (and many other EU nations remain nervous of the blowback) the 'options memo' is extensive and would likely have significant impact on the Russian economy.
Despite yesterday's lackluster earnings the most recent market levitation on low volume was largely due to what some considered a moderation in geopolitical tensions after Europe once again showed it is completely incapable of stopping Putin from dominating Europe with his energy trump card, and is so conflicted it is even unable to impose sanctions (despite the US prodding first France with BNP and now Germany with the latest DB revelations to get their act together), as well as it being, well, Tuesday, today's moderate run-up in equity futures can likely be best attributed to momentum algos, which are also rushing to recalibrate and follow the overnight surge in the AUDJPY while ignoring any drifting USDJPY signals.
In investing sometimes dead makes more sense than alive...
As usual, Europe is talking out of both sides of its mouth (or other orifices). On the one hand, we are told:
- EU foreign ministers failed to agree new sanctions against Russia at a Brussels meeting
And on the other hand:
- Dutch minister says EU imposing new sanctions on officials over Russia
So - which is it Europe?
Today we’re going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).
August gold GCQ14 and September silver SIU14 contract purchases spiked the exact moment Malaysia Airlines reported MH17 missing. Coincidence or tragedy profiteering? You decide.
A dispassionate look at the issues and events shaping the investment climate in the week ahead.