As 'rumors' of European sanctions against Russia's major oil energy firms are leaked strawman-like to the market and expected to be enacted as soon as tomorrow, it appears there is a 'glitch' in the union. The FT's Peter Spiegel reports that one country is holding out on EU sanctions and that is the reason for an emergency unscheduled meeting of EU diplomats this evening. While it is unclear which country it is, something tells us its name begins with an 'A' and ends in 'ustria'... or starts with 'S' and ends in 'lovakia'...
One of the more amusing comments overnight came from Bank of America, which now predicts that China's export growth will be boosted by iPhone 6 by 1% per month through year-end. Whether or not this is accurate is irrelevant, but we are happy that unlike before, BofA has finally figured out that iPhone sales are positive for Chinese GDP, not US, which was the case with the release of the iPhone 4 and 5, when clueless strategists all came out boosting their US (!) GDP forecasts on the iPhone release. We note this because the long-awaited release of Apple's new iPhone will certainly grab some attention tomorrow. According to a BofA poll last week and of the 124 respondents surveyed, 66% of those have noted that they are going to buy the new iPhone and of those planning to buy 75% of those will be replacing their iPhone 5/5s.
The US may be closed on Monday, but after a summer lull that has seen trading volumes plunge to CYNKian lows, activity is set to come back with a bang (if only for the sake of banks' flow desk revenue) with both a key ECB decision due later this week, as well as the August Nonfarm Payrolls print set for Friday. Among the other events, in the US we have the ISM manufacturing on Tuesday, with markets expecting a broadly unchanged reading of 57.0 for August although prices paid are expecting to decline modestly. Then it is ADP on Thursday (a day later than usual) ahead of Payrolls Friday. The Payrolls print is again one of those "most important ever" number since it comes ahead of the the September 16-17 FOMC meeting and on the heels of the moderation of several key data series (retail sales, personal consumption, inflation). Consensus expects a +225K number and this time it is unclear if a big miss will be great news for stocks or finally bad, as 5 years into ZIRP the US economy should be roaring on all cylinders and not sputtering every other month invoking "hopes" of even more central bank intervention.
Last week, Ukrainian Prime Minister Yatsenyuk pushed a bill through the Verkhovna Rada that would see his country’s gas transportation system sold off to a group of international investors. The provisions of the law would permit the transit of natural gas to be blocked. This decision may hurt the fragile industrial recovery in Germany and finish off Ukraine’s potential as a gas transit route to Europe.
Key highlights in the coming week: US Durable Goods, Michigan Conf., Services PMI, PCE, and CPI in Euro area and Japan. Broken down by day: Monday - US Services PMI, New Home Sales (Consensus 4.7%); Singapore CPI; Tuesday - US Durable Goods (consensus 7.5%) and Consumer Confidence; Wednesday - Germany GfK Consumer Confidence; Thursday - US GDP 2Q (2nd est., expect 3.70%, below consensus) and Personal Consumption; Euro area Confidence; CPI in Germany and Spain; Friday - US Michigan Conf. (consensus 80.1), PCE (consensus 0.10%), Chicago PMI; Core CPI in Euro area and Japan (consensus 2.30%). Additionally, with a long weekend in the US coming up, expect volumes into the close of the week to slump below even recent near-record lows observed recently as the CYNKing of the S&P 500 goes into overdrive.
The pattern should be seared in your memory by now. If you fail to recognize it, you could be struck with a huge financial blow. It’s a pattern that has played out over and over throughout history: a government gets into financial trouble, then denies there’s a problem, which is followed by a surprise wealth grab. That’s exactly what happened when bank deposits in Spain and Cyprus were raided. We’ve also seen retirement savings confiscated in some form in Poland, Portugal, and Hungary. Capital controls have been imposed in Cyprus and Iceland. Of course these aren’t the only examples of blatant government thievery. These examples are just within Europe and just within recent years. They can and will happen anywhere.
If you don’t understand the concept of “order out of chaos,” then you’ll never understand a thing. Each supposed disintegration of global unity has eventually led to greater centralization, and this is something the skeptics seem to forget. The progression of crises suggests that the next war will lead to total globalization under the dominance of a minority of elitists posing as "wise men" who only wish to bring peace and harmony to the masses. In the meantime, the skeptics will continue to mindlessly debate in the face of all reason that the whole thing was a fluke, an act of random mathematical chance, leading coincidentally to the one thing the establishment rulers crave: total global totalitarian micromanagement.
If a trader knew nothing about the growth, the debt, the inflation, the exporters vs. importers, the serial defaulters, currency manipulators, hot-money or conversely deflation fighters; simply grouping the nations of the world on whether they were 'friend' or 'foe' to the US would provide an odd highly correlated value perspective on the interest rates paid on 1yr and 10yr sovereign debt... It appears your status with the central bank cabal was more important than your ability to repay the loaned money?
While Ukraine has long since ceased being a customer of Gazprom (for the simple reason being that it can't afford to pay for historical gas purchases let alone future ones, and with a long cold winter just 3 months ahead, Kiev is praying that its brand new Western "allies" will give it the loans it needs to buy Europe-sourced gas), the bulk of Russia-sourced gas into Europe still transits through Ukraine. Not surprisingly, Ukraine correctly understands this is the last trump card it has in any negotiation with the west, or the east. It is this trump card that went into play moments ago when Ukraine's Prime Minister who recently resigned and whose resignation was not accepted, said that Ukraine is considering banning the transit of all Russian "energy resources", i.e. European gas.
Unlike last week's economic report deluge, this week has virtually no A-grade updates of note, with the key events being Factory Orders (exp. 0.6%), ISM non-mfg (exp. 56.5), Trade balance (Exp. -$44.9 bn), Unit Labor Costs (1.2%) and Wholesale Inventories (0.7%).
Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.
Even as the western media finally remembered over the weekend there was a Ukraine civil war going on following an advance by the Kiev army to retake some rebel strongholds in the Donbas region, with some curious what if anything Putin would do in retaliation, what Putin, or rather his envoy Sergei Lavrov were actually doing, was completely ignoring the Ukraine situation (where the West has long since conceded the loss of Crimea to the Kremlin) and instead focusing on securing the successful launch of the South Stream (remember: the second South Stream goes online, Ukraine becomes irrelevant). And since Russia already signed another historic agreement with Austria in June, which positioned the AAA-country (with some surprising emerging bank troubles subsequently) squarely against its fellow European peers, it was the turn of the other South Stream countries, namely Bulgaria.
Ever since 2012, when we first revealed that the biggest problem plaguing Europe's financial sector is the $2 trillion+ in bad debt on the books of European banks (not our numbers, the IMF's), it became clear that the only way Europe can avoid a complete financial meltdown coupled with currency disintegration, is if it can constantly keep rolling over said bad debt (obviously the only way to do that would be to create an epic debt bubble leading managers of other people's money to do idiotic things like buy Spanish debt at 2.75%). This is why not only the BOJ launched its mega QE in 2013, but why Draghi also kicked in with NIRP a month ago: the logic - do anything and everything to reflate the biggest credit bubble possible as otherwise European banks will have no choice but to face up to their trillions in bad loans.
July 4th may be a US national holiday, which means the S&P 500 won't hit a record high on good news and a recorder high on bad, but judging by global trading volumes - already abysmal heading into today - one may as well give the entire world a day off. However, for now, global equities have come off the impressive, and curiously schizophrenic US-data inspired gains of yesterday which sent the DJIA over 17,000 yet which has resulted in an almost unchanged 10Y Treasury print since before the NFP release. Once again bonds and stocks agree to disagree.
A few days ago, when we wrote our "explainer" on the need for Russia to have an alternative pathway for its gas, one which bypasses Ukraine entirely and as the current "South Stream" framework is set up, crosses the Black Sea and enters Bulgaria before passing Serbia and Hungary on the way to the Central European energy hub located in Baumgarten, Austria, we said that "one short month after Putin concluded the Holy Grail deal with Beijing, he not only managed to formalize his conquest of Europe's energy needs with yet another pipeline, one which completely bypasses Ukraine for numerous reasons but mostly one: call it a Plan B." Today we find just what said Plan B is. As Itar-Tass reports, citing Gazprom CEO Alexei Miller, "Russia’s gas giant Gazprom does not rule out gas transit via Ukraine may be stopped completely."