Given the 2008 Russian invasion of Georgia and escalating conflict between Russia and the Ukraine, JPMorgan asks, where is Russia on the road to recreating something like the Soviet Union as an economic, political and financial counterweight to the West?
Summer is over and many Europeans may have to keep warm this coming winter by thinking about their summer holidays while wrapped in blankets, praying for a short winter or for the world to come to its senses. It both cases, they may well be disappointed. The never-ending conflicts in the Middle East, mayhem in Libya, uncertainty in the Gulf and a war in Ukraine are all going to take a toll on the energy supplies this winter. Result? Many cold Europeans, many angry Europeans and many very pissed off Europeans. And what does history tell us about cold, angry, pissed-off Europeans?
- Euro left reeling after ECB's liquidity splurge (Reuters)
- Coalition Emerges to Battle Islamic State Militants (WSJ)
- Ukraine Gas Chief Takes on Gazprom in Race With Winter (BBG)
- Nato leaders fail to agree spending targets (FT)
- JPMorgan Had Exodus of Tech Talent Before Hacker Breach (BBG)
- Mercedes-Benz Sales Rise Despite Weak German Demand (WSJ)
- Secret Network Connects Harvard Money to Payday Loans (BBG)
- ICE looks to crack financial data market (FT)
"The West is afraid of a major war and Putin is exploiting that," says one former Kremlin adviser, adding that "his end goal is a Ukraine that is a buffer state between Russia and the West." After the recent rebel offensive, it's now militarily possible to gain full control of Donetsk and Luhansk and to create a 'land bridge' to Crimea, and "without help, Russian troops can roll ever-deeper into Ukraine." As Bloomberg reports, Vladimir Putin will continue his shadow war until he's created quasi statelets in Ukraine’s easternmost regions with veto power over the country’s future, five current and former Russian officials and advisers said. As they ominously conclude, "Ukraine's only way out is to admit defeat... the longer Ukraine waits, the more territory it will lose and the harsher demands it will face." However, as Gavekal explains, Putin may have staved off an immediate defeat but the stakes have undoubtedly been hugely raised - here are 3 scenarios.
After several months of disappointing trade data which dragged on GDP for the past two quarters, the July trade balance finally was a welcome beat of already low expectations, printing at a deficit of $40.5, better than the $42.4 billion expected, and an improvement from the downward revised deficit of $40.8 billion in July. The deficit declined as exports increased more than imports. The goods deficit decreased $0.2 billion from June to $60.2 billion in July; the services surplus was nearly unchanged from June at $19.6 billion. And yet, even as the deficit contracted, the trade balance excluding the shale revolution, has almost never been worse.
Mario Draghi broke new ground once again this morning by pushing rates even negative-er. We are sure the ECB's top man will further explain how ABS purchases, TLTRO, and even sovereign QE are just around the corner (so keep buying)...
Sterling fell sharply yesterday as traders became nervous of a possible vote for Scottish independence. The referendum on Scottish independence from the United Kingdom takes place on Thursday 18th September.
While the referendum and the potential impact of an independent Scotland have been on the horizon for some time, the approaching vote in two weeks is causing upheaval for the British pound in currency markets, and also more general macro uncertainty in the regional economic and monetary system.
How many times in the last few years have you (or any of Europe's less-than-core leaders) said to yourselves- "EU, what's the point?" All this ceding of sovereignty, centralization of power, relinquishment of decision-making; and for what? The answer - of course - free-er trade, a customs union enabling cross-border trade to flourish and in the great economics textbooks of the world for each member state to do what they do best (German VWs and Greek yogurt?) and maximally profit from that. That all sounds wunderbar in practice... except this rather uncomfortable truth-seeking chart shows that the last decade has seen an accelerating decline in intra-European-Union trade, especially in the last 4 years - to levels that are now below those pre-EU. So, once again, "what's the point?"
Zero inflation is like death penalty to debt-laden countries. It has been estimated that Italy would need a primary surplus of ~8% if it wanted to stabilize its debt/GDP at zero inflation, which means just stopping it from moving even higher. Spain would need a primary surplus of 2%+, instead of current negative 1.44%. Which means more austerity and more contractionary policies, to cause more internal devaluation than it is currently the case, more declines in unit labor costs, more salary cuts, more unemployment, less consumer spending, less corporate investments.... Incidentally, we have for European assets and the ECB the same feeling we have for Japan and the BoJ. Abenomics has a high chance of failure, in the long term. Nevertheless, on the road to perdition, chances are that efforts will be stepped up and more bullets shot in an attempt to avert the end game. As stakes are raised, financial assets will be supported and melt-up in bubble territory, doing so at the expenses of a more turbulent end-game in the years ahead.
- Confusion as Ukraine and Russia announce progress towards peace (Reuters)... but not for stock buying algos, they know everything
- Obama Expresses Skepticism About Possible Ukraine Cease-Fire (WSJ)
- Fighters Unwind in Russia Where Beer Doesn’t Spell Death (BBG)
- Despite dangers, U.S. journalist Sotloff was determined to record Arab Spring's human toll (Reuters)
- New Beheading Video Spurs Calls for Global Response (BBG)
- Christie’s Spending on Outside Lawyers Passes $50 Million (BBG)
- IEX to Apply for Exchange Status (WSJ)
- UK says not ruling out airstrikes against Islamic State, says hostage video genuine (Reuters)
As we discussed yesterday, Vladimir Putin's apparent 'threat' to EU's Barroso that "If I want to, I can take Kiev in two weeks," prompted both anger and response as NATO reacted by stating a new "spearhead" force of 3-5,000 troops would be flown in to combat any (further) Russian aggression. However, Russia is not happy that the EC President leaked the conversation with Putin's aide Ushakov stating that recounting the private conversation was "inappropriate," "undiplomatic," and "unworthy of a serious political player." More troublingly, the cold-war-tension-like escalation from NATO has prompted Russia to revise its military doctrine to account for “changing military dangers and military threats.”
- Ukraine Shifts to Defense Against Russian Incursion (WSJ)
- U.S. forces carry out operation against al-Shabaab in Somalia (Reuters)
- Bond Markets Tilt Toward Frankfurt as Draghi Negates Fed (BBG)
- Another "unexpectedly" - Swiss Economy Unexpectedly Stalls as Euro Area Takes Toll (BBG)
- Japan's 'Abenomics' feared in trouble as challenges build (Reuters)
- Germany Imposes Nationwide Ban on Uber's Cab-Hailing Service (WSJ)
- Japan's 'forward guidance', the GPIF, has "already begun a highly anticipated portfolio reshuffle" (WSJ)
- Detroit Brings Bankruptcy Plan to Court With Billionaires (BBG)
- Burger King has maneuvered to cut U.S. tax bill for years (Reuters)
Gold Lock Down Despite Aggressive Plan To Ban Russia From SWIFT, Terrorism & War Risk; Palladium At Multi-Year High Over $900Submitted by GoldCore on 09/01/2014 15:14 -0500
The 13 year anniversary of the 911 attacks in 2001 looms next week and given developments in recent days and weeks, one must be wary of new attacks in the UK , U.S. and other western nations. The UK has raised the country's terror threat level from substantial to severe, its second highest level. MI5 and MI6 said there was no information to suggest an attack was imminent.
More Sanctions: Europe Will Ban Purchase Of Russian Bonds; However Russian Gas Exports Remain UntouchedSubmitted by Tyler Durden on 09/01/2014 08:18 -0500
Over the weekend, insolvent, debt-dependent Europe thought long and hard how to best punish Russia and moments ago reached yet another milestone in deep projective thought: as Reuters reports, Europeans could be barred from buying new Russian government bonds "under a package of extra sanctions over Moscow's military role in Ukraine that European Union ambassadors were to start discussing on Monday, three EU sources said." This will be in addition to the ban on the debt funding of most Russian corporations. So as Europe's 7-day ultimatum for the Kremlin to "de-escalate" counts down, Putin has a choice: continue operating under a budget surplus and ignore Europe's latest and most amusing hollow threat which is merely a projection of Europe's biggest fears, or spend himself into oblivion as Europe has done over the past decade and become a vassal state of the Frankfurt central bank.. Somehow we doubt Putin will lose too much sleep over this latest "escalation"...