With 2 Russian TV journalists killed in recent days and on the heels of Russia's cutting off Ukraine's gas supply for non-payment, Interfax is reporting that:
*EXPLOSION ON UKRAINE GAS TRANSIT PIPELINE REPORTED: IFX
*INTERFAX CITES UKRAINE INTERIOR MINISTRY ON GAS PIPELINE BLAST
Witnesses say flames are reaching 200 metres high. Gazprom shares are tumbling on the news (as should European stocks) and Russia's Foreign Affairs Committee Chief Aleksei Pushkov warned relations between Ukraine and Russia have entered a new stage and are "moving closer towards a serious conflict."
While we noted last week the death of the Japanese bond market as government intervention has killed the largest bond market in the world; it is now becoming increasingly clear that the dearth of trading volumes is not only spreading to equity markets but also to all major global markets as investors rotate to derivatives in order to find any liquidity. Central planners removal of increasing amounts of assets from the capital markets (bonds and now we find out stocks), thus reducing collateral availability, leaves traders lamenting "liquidity is becoming a serious issue." While there are 'trade-less' sessions now in Japanese bonds, the lack of liquidity is becoming a growing problem in US Treasuries (where the Fed owns 1/3rd of the market) and Europe where as JPMorgan warns, "some of this liquidity may be more superficial than really deep." The instability this lack of liquidity creates is extremely worrisome and likely another reason the Fed wants to Taper asap as DoubleLine warns, this is "the sort of thing that rears its ugly head when it is least welcome -- when it’s the greatest problem."
This week brings some key events and releases in DMs, including US FOMC (Goldman expects $10bn tapering, in line with consensus), IP, CPI, and Philly Fed (expect 13.5), EA final May CPI (expect 0.50%), and MP decisions in Norway and Switzerland (expect no change in either).
It's one of those days: despite the Iraq conflict spilling out of control and about to involve US drones and warplanes, despite China's naval conflict with Vietnam over an oil rig in disputed territory set to go "kinetic" at any moment, despite the Ukraine civil war having its deadliest day yet this weekend and adding insult to injury Russia halting gas supplies to Ukraine (letting Kiev and Berlin fight for the scraps), despite crude prices rising ever higher and about to unleash a "discretionary income" shockwave on America's summertime motorists, despite yet another massive tax inversion M&A deal in which the buyer has made abundantly clear its stock is overvalued and will be used as the purchasing currency, stocks are inexplicably not at all time highs this morning.
Spanish Government Goes Digging For GDP, Asks Brothels: "How Many Services Do Your Hookers Provide?"Submitted by Tyler Durden on 06/12/2014 16:29 -0400
First Italy, then Britain, and now Spain has decided that the key to reducing its debt-to-GDP ratio is not fiscal responsibility, growth, inflation, or restructuring but simply changing the denominator to better reflect reality - in other words, as El Pais reports, Spain is putting an official number on its sex trade and therefore juicing GDP. Prostitution, which is in legal limbo in Spain, is expected, according to revised figures released by the INE on Thursday Spanish GDP increases by between 2.7% and 4.5% after illegal activities such as prostitution, drug trafficking and smuggling are included. The Spanish government is undertaking a sexual services survey to better understand the industry...
With another day of little otherwise completely irrelevant macro news (because following last night's abysmal Australian jobs data one would think the AUD would be weaker; one would be wrong), market participants - all 3 of them - and algos (which have finally uncovered where Iraq is on google maps) are finally turning their attention to the latest conflict in Iraq (because they obviously no longer care about the martial law in Thailand or the civil war in Ukraine), where the Al Qaeda spin off ISIS overnight seized at least 310K B/D in refinery capacity in northern Iraq according to the Police, and what is more concerning, is now less than a 100 kilometers away from Baghdad. Will ISIS dare to venture further south? Keep an eye on crude for the answer.
Across the world, the number of people who say the economic situation in their country is "bad" is climbing - despite the much-vaunted recovery we all keep hearing about from politicians. It seems though, as Grant Williams explains in great detail, that the voice of the people is on the rise. This is a problem, because whilst the anti-EU bloc failed to get enough seats to derail the bureaucracy of Brussels, they did win enough to create some serious waves and make it far harder to railroad through policy the next time the wheels on the wagon start to wobble... and wobble it is. Shameless politicians who are willing to put aside technicalities such as the truth and a voting population that is tired of the status quo and looking for a change? The conscious uncouplings may have only just begun...
Last Thursday, the European Central Bank (ECB) took the historically unprecedented step of lowering certain of its interest rates below 0%. In a report immediately following the announcement, Peak Prosperity's Chris Martenson likened the move to the policy equivalent of dropping a neutron bomb. In the days following, despite the ECB attempting to clarify its stance further, many questions still linger; most notably: What exactly will the implications of this negative interest rate (NIRP) policy be? Alasdair Macleod lays things out in black as white as much as is possible; explaining exactly what steps the ECB is undertaking, what the most probable ramifications will be, and where the highest degrees of risk now lie..."The ECB now finds itself on the cusp of this failure. Remember, there are some very big banks with gearing over 40-50 times. All you need is a fall in prices of 1%, 2%, or 3% for a few companies to go bust, and then those banks are no longer solvent. It is a nightmare scenario. It really is."
Brazil wins the world cup... according to Bloomberg, 171 economists, and Goldman Sachs. They beat Spain, Germany, or Argentina in the final respectively but as one survey participant noted, "It’s kind of hard to bet against Brazil -- they have home advantage, the climate, crowd and recent record." Goldman's 'model' implies a 48.5% chance that Brazil wins it all (with Argentina 2nd most likely to win at 14.1%). While all eyes will be on Ronaldo, Goldman's Dream Team is dominated by 3 Brazilians (including Neymar of course) but based on the 6-factor Poisson distribution-based regression model, Goldman predicts the scores of every game (and Bloomberg's interactive graphics allow to create your own bracket). If only the Brazilian people were so certain about their futures...
One major factor to the slow growth/low inflation in the U.S. is the Wall Street Yield Trade. By incentivizing unproductive use of capital, low interest rate via monetary policy is actually deflationary.
We have had The Great Depression, The Great Moderation, and The Great Recession... but now, thanks to central banks around the world, we have The Great Insanity. Nowhere is the disconnect between market rates and fundamental realities more evident than in European peripheral bond yields. While it is easy to look at the last decade and wonder how it is possible that such heavily indebted (and increasingly indebted) nations could have seen bond yields collapse... but as Deutsche Bank's Jim Reid explains, a glance at France, Italy, and Spain bond yields over the last 200 years shows that this really is a unique time in history (and not in a good way).
Bail-ins or deposit confiscation can now be used in the UK, EU, U.S. and G20 countries. Investors and savers best get prepared for the coming bail-in era. After Cyprus, which country will be the next to suffer bail-ins?
Eurozone recessions, unemployment fiascos, toppling banks, crashing auto sales... didn’t exist, sez the Stoxx 600. But then an ugly thing happened.
Der Spiegel deemed it was the “end of capitalism”, while Die Welt described Mr Draghi as Europe’s Bismarck and as a near autocrat beyond control. Throughout history, currency debasement has been the easy option for emperors, kings, queens and governments. It is the easy option of central banks and of Goldman's Draghi today.