- Index of largest Chinese stocks drops to lowest since February 2009 (BBG)
- Plane-Debris Hunters Seek Suspected Aircraft Window Part (BBG)
- New-Home Building Is Shifting to Apartments (WSJ)
- Forward Guidance Risks Stoking Instability, BIS Says (BBG)
- Alleged Bitcoin Millionaire Nakamoto Gets $28,000 Donations (BBG)
- Mexico kills drug kingpin reported dead years ago (Reuters)
- Tencent to Buy 15% Stake in JD.com to Boost E-Commerce (BBG)
- Bitcoin exchange MtGox 'faced 150,000 hack attacks every second’ (Telegraph)
- Noyer Says Stronger Euro Creates Unwarranted Pressure on Economy (BBG)
- Russian Forces Gain in Ukraine as Separatist Vote Looms (BBG)
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.
When one studies history, all events seem to revolve around the applications and degenerations of war. Great feats of human understanding, realization and enlightenment barely register in the mental footnotes of the average person. War is what we remember, idealize and aggrandize, which is why war is the tool most often exploited by oligarchy to distract the masses while it centralizes power. With the exception of a few revolutions, most wars are instigated and controlled by financial elites, manipulating governments on both sides of the game to produce a preconceived result. Every major international crisis for the past century or more has ended with an even greater consolidation of world power into the hands of the few, and this is no accident.
The U.S. government and the Russian government have both been forced into positions where neither one of them can afford to back down. If Barack Obama backs down, he will be greatly criticized for being "weak" and for having been beaten by Vladimir Putin once again. If Putin backs down, he will be greatly criticized for being "weak" and for abandoning the Russians that live in Crimea. In essence, Obama and Putin find themselves trapped in a macho game of "chicken" and critics on both sides stand ready to pounce on the one who backs down. But this is not just an innocent game of "chicken" from a fifties movie. This is the real deal, and if nobody backs down the entire world will pay the price.
Geopolitical crises in Eastern Europe have been met with calls in the United States to use energy as a foreign policy tool. With U.S. Energy Secretary Ernest Moniz asking the industry to make a stronger case, however, it's domestic policies that may inhibit energy hegemony.
While Big Oil, consumer groups, lobbyists, lawmakers... are mudwrestling over the export ban, exports of “petroleum products” are soaring.
We have discussed the sword of Damocles that is hanging over the heads of the Ukrainian (and European for that matter) people for some time. The dominant role that Russia plays in providing energy is becoming critical, however, as Gazprom notes:
- *GAZPROM SAYS TODAY IS DEADLINE FOR NAFTOGAZ TO PAY FOR FEB. GAS
- *NAFTOGAZ OVERDUE PAYMENTS AT $1.89B FOR GAS SUPPLIES: GAZPROM
- *GAZPROM SAYS NAFTOGAZ ISN'T OBSERVING CONTRACT
- *GAZPROM: UKRAINE DEBTS CREATE 'RISK OF RETURN TO SITUATION AT BEGINNING OF 2009' (when Gazprom cut off Ukraine gas supplies)
Of course, the US agreed to $1b bailout yesterday - but that's not supposed to be used as a direct transfer payment to the Russians.
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.
Palladium has gained 5.5% during the last five days of the crisis and is up 7.9% year to date. Ore deposits of palladium are rare and are mostly located in Russia and South Africa. Russian resource nationalism, as has been seen with natural gas, could lead to supply disruptions and to palladium going higher in the coming months. Some analysts believe palladium may be in deficit for most of the next decade as Russia depletes stockpiles and industrial uses and investment demand for the precious metal increase.
“Maybe the American people or the government or whoever raises their eyebrows can say how could the Europeans be so moderate on the debate over sanctions.
Guess what? You don’t want to sanction anyone you depend on,”
Many observers have focused on the relative paucity of the West's diplomatic and military options in Ukraine. Others focus on Russia's sources of leverage: cutting off natural gas to western Ukraine and Europe and/or dumping its reserves of U.S. dollars. All those focusing on the West's lack of leverage are forgetting that the Empire retains multiple way of striking back. For example, bringing the costs of misadventure home to Russia's politically influential 1/10th of 1%.
Ukraine Won't Pay Russia For Gas, Has Billions In Obligations Due; Europe Promises Aid Money It Doesn't HaveSubmitted by Tyler Durden on 03/05/2014 09:03 -0400
About an hour ago, the head of Russia's top natural gas producer Gazprom said on Wednesday that Ukraine had informed the company it could not pay for February gas deliveries in full, further adding to tensions between Moscow and Kiev. Alexei Miller said Ukraine's total debt to Gazprom for gas deliveries was nearing $2 billion. "Our Ukrainian colleagues informed us that they would not be able to pay in full for February gas deliveries," he told Russian President Vladimir Putin.
Scrape away the media sensationalism and geopolitical posturing and it boils down to a simple dynamic: follow the energy.
UPDATE: EU is suggesting it will help Ukraine pay its $2bn Russian gas bill (to keep its spice flowing)
The question many are asking this morning is what is the iron-first of Putin thinking? With his "military exercise" over, does he believe it enough to have shown the world his potential for disruption? We suspect another reason may have been weighing on his mind. As we noted previously, Europe accounts for around a third of Gazprom's total gas sales, and around half of Russia's total budget revenue comes from oil and gas... and whatever Putin's geo-political ambitions, we suspect he did not want to jeopardize that source of revenue - no matter how much sabre-rattling and Gazprom-fear-mongering. As the following chart shows, Europe should be sighing a huge relief this morning - but remain cognizant that this, we suspect, is far from over.
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.