European Central Bank
- Putin rebuffs Obama as Ukraine crisis escalates (Reuters)
- Behind the $100 Billion Commodity Empire That Few Know (BBG)
- Initial Public Offerings Hit Pace Not Seen in Years (WSJ)
- Russian Parliament Will Back Crimea Split From Ukraine (WSJ)
- Nakamoto Named as Bitcoin Father Denies Involvement, Flees Press (BBG)
- Chaori Can’t Make Payment in China’s First Onshore Default (BBG)
- Zombies Spreading Shows Chaori Default Just Start (BBG)
- Pimco's Gross declares El-Erian is 'trying to undermine me' (Reuters)
- U.S. Fighters Circle Baltics as Putin Fans Fear of Russia (BBG)
Today's nonfarm payroll number is set to be a virtual non-event: with consensus expecting an abysmal print, it is almost assured that the real seasonally adjusted number (and keep in mind that the average February seasonal adjustment to the actual number is 1.5 million "jobs" higher) will be a major beat to expectations, which will crash the "harsh weather" narrative but who cares. Alternatively, if the number is truly horrendous, no problem there either: just blame it on the cold February... because after all what are seasonal adjustments for? Either way, whatever the number, the algos will send stocks higher - that much is given in a blow off top bubble market in which any news is an excuse to buy more. So while everyone is focused on the NFP placeholder, the real key event that nobody is paying attention to took place in China, where overnight China’s Shanghai Chaori Solar defaulted on bond interest payments, failing to repay CNY 89.9mln (USD 14.7mln), as had been reported here extensively previously. This marked the first domestic corporate bond default in the country's history - indicating a further shift toward responsibility and focus on moral hazard in China.
Promises, promises. A lack of easing, aside from a promise of "lower for longer", has driven EURUSD back above 1.38 as the market is once again disappointed by Draghi's lack of exuberance.
- *DRAGHI SAYS UNEMPLOYMENT STABILIZING, REMAINS HIGH (umm, continues to rise every month?)
- *DRAGHI SAYS UPSIDE, DOWNSIDE INFLATION RISKS REMAIN LIMITED (umm, continues to plunge every month?)
- *DRAGHI SAYS RISKS TO ECONOMIC OUTLOOK ARE ON DOWNSIDE (umm, stocks are at record highs?)
- *DRAGHI SAYS REAL INCOME SUPPORTED BY LOWER ENERGY PRICES (umm, so no sanctions on Russia then?)
But apart from that, Draghi is "nailing it"...
Dismally drifting towards deflation as credit creation is a long and distant thing of the past in the European Union, this morning's decision to hold rates unchanged leaves a lot of "whatever it takes" hope left for the press conference. Whether he will ease lending standards, cut haircuts, enable more securitization, push direct lending (there's no demand!), or "promise" open-ended QE - it's all on the table but we suspect it will be more talk and "whatever" he is doing so far is working... stocks are near record highs and bond yields record lows - which must mean Europe is fixed...
Even though 14 out of the surveyed 54 economists expected a rate cut of some sort, and some were even calling for an outright QE any minute now, this time the majority of academics, or 40 of them, were right and the ECB proceeded with no changes to its various interest rates.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.25%, 0.75% and 0.00% respectively. The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.
Maybe Draghi will announce something more actionable at his press conference at 8:30 am but at this point it appears that the ECB's hand are tied even as the continent continues to drift ever more into deflation.
- Spot the inaccuracies: Stocks rise on Ukraine diplomacy, ECB easing speculation (Reuters)
- Bank of England Extends Record-Low Rates Into a Sixth Year (BBG)
- China's Chaori Solar poised for landmark bond default (Reuters), explained here previously
- EU leaders meet in Brussels to address Ukraine crisis (FT)
- Nine-month-old baby may have been cured of HIV, U.S. scientists say (Reuters)
- China Raises Defense Spending 12.2% for 2014 (WSJ)
- China Stock Index Rises as Developers Jump on Policy Speculation (BBG)
- VTB Cancels New York Forum as U.S. Relations Sour (BBG)
- IBM workers strike in China over terms of Lenovo takeover (FT)
- College Board Redesigns SAT Exam Making Essay Portion Optional (BBG)
Following yesterday's abysmal employment and service data which led to an unchanged close it quite clear that the market has returned to a mode where it ignores all newsflow - at least the bad, which is due to the weather, the good news is due to the recovery - and instead is simply driven by such "fundamental drivers" as the momentum and position of the Yen carry trade. And overnight the USDJPY positively exploded following news that the Japan advisory committee has decided the nation's pension fund, the GPIF, does' t need a domestic bond focus. Implicitly this means that the GPIF will soon be able to purchase stocks like Facebook and Tesla, which is a guaranteed way of generated short-term gains and longer-term total losses for the Japanese pensioners. Of course, when the latter happens, nobody will have been able to foresee it and some scapegoat somewhere will be summarily fired. As for what this means for futures, the drift higher has made SPOOs rise once more and at last check was just below if not at new all time highs on an ongoing barrage of increasingly negative macro news.
Below is the photo that reveals why US and EU bankers despise Russian President Putin so much
- High Stakes Limit Bid to Cow Putin (WSJ)
- Russia says can't control Crimea troops ahead of U.S. talks (Reuters)
- Crimea Crisis Haunted by Ghosts of Bungled World War I Diplomacy (BBG)
- Putin’s Ukraine Gambit Hurts Economy as Allies Lose Billions (BBG)
- Germany Says It Provided Equipment and Training to Ukraine's Riot Police (WSJ)
- China signals focus on reforms and leaner, cleaner growth (Reuters)
- China Shares in Hong Kong Decline Amid Default Concern (BBG)
- Beijing Signals New Worry on Growth (WSJ)
With the world still on edge over developments in the Ukraine, overnight newsflow was far less dramatic than yesterday, with no "bombshell" uttered at today's Putin press conferences in which he said nothing new and simply reiterated the party line and yet the market saw it as a full abdication, he did have some soundbites saying Russia should keep economic issues separate from politics, and that Russia should cooperate with all partners on Ukraine. Elsewhere Gazprom kept the heat on, or rather off, saying Ukraine recently paid $10 million of its nat gas debt, but that for February alone Ukraine owes $440 million for gas, which Ukraine has informed Gazprom it can't pay in full. Adding the overdue amounts for prior months, means Ukraine's current payable on gas is nearly $2 billion. Which is why almost concurrently Barosso announced that Europe would offer €1.6 billion in loans as part of EU package, which however is condition on striking a deal with the IMF (thank you US taxpayers), and that total aid could be as large as $15 billion, once again offloading the bulk of the obligations to the IMF. And so one more country joins the Troika bailout routine, and this one isn't even in the Eurozone, or the EU.
While everyone was focusing on the threat of tumbling debt dominoes in China's shadow banking sector, a new threat has re-emerged: regular, plain vanilla corporate bankruptcies, in the country with the $12 trillion corporate bond market (these are official numbers - the unofficial, and accurate, one is certainly far higher). And while anywhere else in the world this would be a non-event, in China, where corporate - as well as shadow banking - bankruptcies are taboo, a default would immediately reprice the entire bond market lower and have adverse follow through consequences to all other financial products. This explains is why in the past two months, China was forced to bail out not one but two Trusts with exposure to the coal industry as we reported previously in great detail. However, the Chinese Default Protection Team will have its hands full as soon as Friday, March 7, which is when the interest on a bond issued by Shanghai Chaori Solar Energy Science & Technology a Chinese maker of solar cells, falls due. That payment, as of this moment, will not be made, following an announcement made late on Tuesday that it will not be able to repay the CNY89.8 million interest on a CNY1 billion bond issued on March 7th 2012.
Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US - European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.
Dispassionate look at next week's calendar.
A weekly technical outlook for the major currencies.