Ukraine

In addition to the already noted fireworks out of China, where the Yuan saw the biggest daily plunge since 2008 and the ongoing and very rapid newsflow out of the Ukraine, focus this morning was very much of the latest Eurozone CPI data, which despite matching previous low levels, came in above expectations and in turn resulted in an aggressive unwind of short-EUR bets as market participants were forced to re-asses the likelihood of more easing by the ECB. Still, even though the Euribor curve bear steepened and Bunds came under significant selling pressure, the EONIA forward curve remained inverted, signifying that there is still a degree of apprehension over what is unarguably very low inflation data.

The bizarre events in the Crimea continued overnight, after unidentified masked men but dressed like those who took over the parliament in Simferopol yesterday, took over two airports by blockading one near the Russian naval base in Sevastopol and another in the capital of Simferopol. This prompted the Ukraine's interior minister Arsen Avakov, to accuse Moscow's military of blockading the airports, and in a Facebook post, he called the seizure of the Belbek international airport in the Black Sea port of Sevastopol a "military invasion and occupation." He added: "It is a breach of all international agreements and norms." As NBC reports, the Interfax news agency quoted Russian military sources as saying the incident at Belbek airport was intended to stop "fighters" flying in. However, Interfax later quoted a Russian official as saying that no units had approached the airport or blockaded it. In a nutshell, Russia continues to push with escalation ever further, and is testing just how far it can and will go without Ukraine responding.

"In 2013, China embarks on a new road after the conclusion of the Third Plenum of the 18^th National Congress of the Chinese Communist Party. On December 26, China solemnly commemorated the 120th anniversary of the birth of Mao Zedong. On this same day, Japanese Prime Minister Shinzo Abe provoked China by visiting the Yaksukuni Shrine in Tokyo. In response, the Chinese Foreign Ministry spokesman quoted Mao Zedong’s “On Protracted War,” and implied that the final victory will belong to China. The new China is born in blood and fire, and is not only unafraid of war, but also courageous in welcoming reasonable and lawful conflict, because defending the country from aggression serves to further boost the development of the state’s power. The Chinese nation loves peace, but there is little doubt that glory drenched in blood will pave China’s road to revitalization. This is the glory that generations to come will treasure.  Sound the alarms for war preparation, remold our firm convictions, wake up the fearless people, and revive our strategic industries—our country is moving forward and our future is bright!" - President Of China's Marine Institute For Security And Cooperation

According to the stock markets in the US and in Europe, the world’s economy is not just in good shape, but is in the best shape it’s ever been.  The S&P 500 hit an intraday new record high of 1,858.71 on Feb 24, 2014, and is now 18.6% above the peak it hit in 2007, a moment everybody now recognizes was heavily overvalued. An almost 19% gain above the prior all time high is an enormous and unusual event. Surely, you are thinking, there must be an equally compelling story and loads of fundamental data to support such a bull market?

Well, there really isn’t.

It doesn't take any special insight into the situation in Ukraine to conclude that no one narrative illuminates all the dynamics. Various contesting Grand Narratives have emerged in the media--neofascist coup, rampant corruption, east versus west, to name a few--but these only describe a few of the regional fault lines and complexities... I describe the U.S. Deep State as the National Security State which enables a vast Imperial structure that incorporates hard and soft power--military, diplomatic, intelligence, finance, commercial, energy, media, higher education--in a system of global domination and influence.  One key feature of the Deep State everywhere is that it makes decisions behind closed doors and the surface government simply ratifies and implements the decisions. I have covered various aspects of geopolitics and the Deep State for years, for example:

Russia may be awaiting a diplomatic resolution of the Ukraine crisis, but we wouldn't hold our breath especially with the deposed president Yanukovich set to conduct a press conference tomorrow from Russia's Rostov-on-Don at 5pm local time, where we hardly anticipate a scaling back of the escalation in what is sure to not be an abdication from power. Instead, Putin continues to prepare for the worst and is openly signalling to the West that if he has to fight to regain influence in the Ukraine, he will, as a top Kremlin politician warned last week. As such it was not surprising to read that two Russian warships, the Minsk and the Kaliningrad which last week were sent out on deployment around Syria, crossed back into the Black Sea, most likely in direction Sevastopol, as the build up of Russian forces in the Crimea continues.

While the "developed" world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn't turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that "Ukrainian banks will be provided with necessary liquid assets, including cash." But there is a condition: the funding will only come "if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website."

While the IMF is promising a massive bailout to the Ukraine, and NATO is using the harshest language it can possibly muster to halt Russia in its tracks, Putin is doing what he does best: employing brute force (as seen below), and using even harsher language, to wit: RUSSIA: WEST MUST STOP MAKING PROVOCATIVE STATEMENTS ON UKRAINE.

Russian tat. And now, NATO tit.

• NATO CHIEF SAYS ACTIONS BY ARMED GROUP IN CRIMEA "DANGEROUS AND IRRESPONSIBLE"
• NATO URGES RUSSIA NOT TO DO ANYTHING THAT WOULD "ESCALATE TENSION OR CREATE MISUNDERSTANDING"

And the lie of the day:

• U.S., NATO HAVE NOT DRAWN UP ANY CONTINGENCY PLANS FOR HOW THEY WOULD RESPOND IF RUSSIA INTERVENED IN CRIMEA-NATO'S TOP MILITARY COMMANDER
• THERE IS NO REASON FOR NATO AND RUSSIA TO COMPETE OVER THE FUTURE OF UKRAINE-NATO COMMANDER

Actually, there is, which is precisely why Putin will smile when reading the latest NATO pleadings.

All those clips we showed in the past few days of Russian forces amassing in the Crimean? Well, turns out they were all predictive of what has just happened in the Crimean region parliament at Simferopol, where around 120 pro-Russian Gunmen occupied the parliament building and raised the Russian flag. The scene was the site of Wednesday’s scuffles between Tatar groups and pro-Russian supporters. As Euronews reports, local Tatar leader Refat Chubarov posted that the buildings have been occupied by men in uniforms bearing “no recognisable insignia.” Kyiv says it would regard any movements by Russian military in Crimea outside Moscow’s Black Sea Base in Sevastopol as an act of aggression. Following the fall of President Viktor Yanukovych divisions in Ukraine have come to the fore. All this happens as Russian troops in the area are building up and at the same time as Russia put fighter jets on combat alert, according to Interfax.

The political and economic crisis in Ukraine has led to a currency crisis. The Ukrainian hryvnia has fallen by 50.14% against gold in 2014 and by 28% in the last four days alone. Ukrainians who own gold have protected their savings - again showing gold’s safe haven properties.

• European Bonds Surge on Slowing German Inflation, Ukraine Tumult  (BBG)
• Ukraine tensions hit shares (Reuters)
• Debating Geithner’s Appearances in 2008 Transcripts  (Hilsenrath)
• Tensions in Asia Stoke Rising Nationalism in Japan (WSJ)
• GM Investigated Over Ignition Recall Linked to 13 Deaths (BBG)
• Smartphone wars shift from gadgetry to price (Reuters)
• Some Companies Alter the Bonus Playbook (WSJ)
• London’s Subterranean Luxury Manors Lure New Breed of Lenders (BBG)
• Japan No Country for Old Farmers as 7-Eleven Takes Plow (BBG)
• Dream of U.S. Oil Independence Slams Against Shale Costs (BBG)

Three unlucky attempts in a row to retake the S&P 500 all time high may have been all we get, at least for now, because the fourth one is shaping up to be rather problematic following events out of the Crimean in the past three hours where the Ukraine situation has gone from bad to worse, and have dragged the all important risk indicator, the USDJPY, below 102.000 once again. As a result, global stock futures have fallen from the European open this morning, with the DAX future well below 9600 to mark levels not seen since last Thursday. Escalated tensions in the Ukraine have raised concerns of the spillover effects to Western Europe and Russia, as a Russian flag is lifted by occupying gunmen in the Crimean (Southern Ukrainian peninsula) parliament, prompting an emergency session of Crimean lawmakers to discuss the fate of the region. This, allied with reports of the mobilisation of Russian jets on the Western border has weighed on risk sentiment, sending the German 10yr yield to July 2013 lows.

When civilians launched a suicidal attack on an armed force in Kyiv on February 20, their sense of representing “the nation” far outweighed their concern with their individual mortality. The result was to swing a deeply divided society from the verge of civil war to an unprecedented sense of unity. Whether that unity endures will depend on how Europe responds. We hope and trust that Europe under German leadership will rise to the occasion.  We must, however, end with a word of caution. A replay of the Cold War would cause immense damage to both Russia and Europe, and most of all to Ukraine, which is situated between them.

Shortly after the US warned Russia over its "provocative actions" with regard Ukraine...

• *KERRY: RUSSIA MILITARY MOVE ON UKRAINE WOULD BE GRAVE MISTAKE

RiaNovosti reports defense minister Sergei Shoigu saying Russia plans "to expand permanent military presence outside its borders by placing military bases in a number of foreign countries," including Vietnam, Cuba, Venezuela, Nicaragua, the Seychelles, and Singapore. "The talks are under way, and we are close to signing the relevant documents," Shoigu told reporters in Moscow.