There is a reasonably quiet start to the week before we head into the highlights of the week including the start of US reporting season tomorrow, FOMC minutes on Wednesday and IMF meetings in Washington on Friday. On the schedule for today central bank officials from the ECB including Mersch, Weidmann and Constancio will be speaking. The Fed’s Bullard speaks today, and no doubt there will be interest in his comments from last week suggesting that the Fed will hike rates in early 2015.
Over the past month, there has been a lot of "Hilsenrathing", or the biased media urgently "explaining" to the Western world, just what Russia's actions mean both tactically in response to Ukraine developments, and strategically as part of Putin's global perspective. So instead of relying on the broken media narrative which serves merely to perpetuate US corporate interests and rally the public behind this or that company's geopolitical interests, here, straight from the horse's mouth, in this case Russian foreign minister Sergey Lavrov, how Russia sees itself in a world in which it is allegedly "isolated", and "threatening Ukraine" with further invasion but more importantly, how the Russians view the rapidly changing global balance of power, in which post-USSR Russia has emerged from the backwood of slighted nations and stormed to the stage of nations who dare defy the former global hegemon, the US.
While Naftogaz (Ukraine's gas pipeline operator) states that all gas transportation from Russia to Europe is running normally, Bloomberg reports that Russian natgas exports to Europe are declining. Shipments are down over 4% from the prior week and also lower to Ukraine. This 'adjustment' follows increased sanctions by the West as Medvedev's notable statement this morning that Ukraine owes Russia $16bn. Furthermore, Gazprom has cut its Diesel output by the most in 7 months... and just to rub some Black Sea salt into the wound, NY Times reports that Russia's asking price for natgas to Europe is soaring.
If there was one thing that the market was demanding after last night's disappointing March HSBC manufacturing PMI, which has now fallen so low, local market participants are convinced a stimulus is imminent (despite China's own warnings not to expect this), and sent both the SHCOMP and the CNY surging, it would have been further weak data out of Europe, where the other possible, if not probable, "QE-stimulus" bank is located now that the Fed is in full taper mode. It didn't get precisely that however there was a step in the right direction when overnight the Euro area Composite Flash PMI eased marginally from 53.3 to 53.2 in March, largely as expected. The country breakdown showed a narrowing of the Germany/France Composite PMI gap owing to a notable (3.7pt) increase in the French PMI while the German PMI eased somewhat (1.4pt). On the basis of past correlations, a Euro area Composite PMI of 53.2 is consistent with GDP growth of around +0.4%qoq, slightly stronger than our Current Activity Indicator (+0.35%qoq).
The Russian occupation of Crimea has raised concerns about the European Union’s dependence on its eastern neighbor for natural gas. The EU gets about 34% of its natural gas imports from Russia, a large portion of which transits Ukraine through a web of pipelines. For Eastern Europe, that dependence is much greater. In the brutally cold winter of 2009 Russia cut off gas supplies to Europe allegedly over a pricing dispute with Ukraine. However, it was also a lesson to Western Europe on its dependence on Russia for energy. The economic damage of energy supply disruptions cuts both ways. Putin likes to play the role of bully, but Russia is not exactly in a strong position in terms of using energy as a political weapon. Whether or not the Ukraine crisis deepens, it is unlikely that Moscow would intentionally turn off the taps for any prolonged period of time.
It’s history in the making, sitting on the sidelines, watching the scuffle happen and roll before your very eyes. But, it’s not worth a great deal when you know what the end of the match is going to be.
- European Bonds Surge on Slowing German Inflation, Ukraine Tumult (BBG)
- Ukraine tensions hit shares (Reuters)
- Debating Geithner’s Appearances in 2008 Transcripts (Hilsenrath)
- Tensions in Asia Stoke Rising Nationalism in Japan (WSJ)
- GM Investigated Over Ignition Recall Linked to 13 Deaths (BBG)
- Smartphone wars shift from gadgetry to price (Reuters)
- Some Companies Alter the Bonus Playbook (WSJ)
- London’s Subterranean Luxury Manors Lure New Breed of Lenders (BBG)
- Japan No Country for Old Farmers as 7-Eleven Takes Plow (BBG)
- Dream of U.S. Oil Independence Slams Against Shale Costs (BBG)
- Facebook CEO Raises Dealmaker Profile With $19 Billion Takeover (BBG)
- WhatsApp’s Founder Goes From Food Stamps to Billionaire (BBG)
- U.S. Feels Putin's Sharp Elbows in Ukraine (WSJ)
- PBOC Drains Cash as Overnight Rate Slides to Lowest in 10 Months (BBG)
- Fed Puts Rate Increase on the Radar (Hilsenrath)
- Banks Flouting Bonus Rules in Denmark Set to Be Named by FSA (BBG)
- Work Set to Resume on Upgrading Panama Canal (WSJ)
- Euro-Area Recovery Loses Pace as Manufacturing Weakens (BBG) - uh, what recovery?
- Ukraine Exposes EU Policy Disarray (WSJ)
A recent article at the BBC discusses the findings of a report by EU Home Affairs commissioner Cecilia Malmstroem on corruption in the EU. According to the report, the cost of corruption in the EU amounts to €120 billion annually. We would submit that it is likely far more than that (in fact, even Ms. Malmstroem herself concurs with this assessment). This is of course what one gets when one installs vast, byzantine bureaucracies and issues a veritable flood of rules and regulations every year. More and more people are needed to administer this unwieldy nightmare of red tape, and naturally the quality of the hires declines over time due to the sheer numbers required. And that is merely what they actually know about...One gets an inkling of how big the problem may really be when considering the case of Greece.
The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).
- Yellen's first test (Reuters)
- Let weak banks die, says eurozone super-regulator (FT)
- Yellen, Carney Face Explaining Policy as Benchmarks Near (BBG)
- Commerzbank Said Seeking Debt Buyers in $6.8 Billion Spain Exit (BBG)
- Junk Yield Premiums Soar on China’s Looming First Default (BBG)
- Millions Trapped in Health-Law Coverage Gap (WSJ)
- Mandel Tops Best-Earning Hedge Funds for Clients in 2013 (BBG)
- Swiss Brace for Sour EU Relations After Immigration Vote (BBG)
- Detroit Bankruptcy Talks to Resume (WSJ)
As if we didn’t know it already! The Western world is the ultimate destination for corruption, pulling a swift one and swiping the valuables from the inside pocket of the guy’s pants standing in front of you as he keeps his beady eye on the economy.
The key events this week are have non-farm payrolls (consensus 181K) and unemployment rate (consensus 6.7%). There is also going to be a number of speeches given by Fed policymakers. Production surveys from the US (ISM) and other parts of the world are due Monday. We also get trade balance updates from the English-speaking economies - US, UK, Australia and Canada. Finally, keep track on inflation data from Italy and Turkey: the latter is important to track given current high correlation among 'fragile' EM currencies.
After last week's economic fireworks, this one will be far more quiet with earnings dominating investors' attention: US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket. On the macro front, this coming week we have two MPC meetings - both in LatAm. For Brazil consensus expects a 25bps hike in the policy rate. For Chile consensus forecasts monetary policy to remain on hold. Among the data releases, one should point out inflation numbers from the US (CPI and PPI), Eurozone, the UK and India. We also have three important US producer and consumer surveys - Empire Manufacturing, Philadelphia Fed (consensus +8.5), and U. of Michigan (consensus 83.5). Among external trade and capital flow stats, we would emphasize US TIC data, as well as current account balances from Japan and Turkey. Finally, the accumulation of FX reserves in China is interesting to track as it provides an indication of CNY appreciation pressure.
No surprises here: hours after we reported that youth unemployment in Spain soared to fresh record highs (surpassing the already nosebleeding number of jobless people under 25 in Greece), here comes Gallup with a poll showing the approval rating of the (unelected) EU Leadership across the peripheral countries. And while there was a slight uptick in approval among respondents in Italy - the country that has so far benefited the most from the Italian central banker at the helm of the ECB - the EU's lack of approval just rose to all time highs in the two countries that continue to see their youth employment hopes crushed by the European experiment, with approval in Spain sliding to 27% (from 55% in 2010), while Greece, plunged to only 19%, which makes one wonder: just who has an interest in keeping Greece in Europe?