Ukraine

Twice in recent years, Russia has suspended gas supplies, or notably raised prices, as the somewhat well-known "trump card" of Russia's oil and gas supply to Ukraine (and Europe for that matter) remains Putin's easiest option for clenching his iron-first against the divided nation. Following a pre-emptive move in November by Ukraine to diversify its energy supply,  Russia had reduced the price of gas for the highly indebted Ukraine in December (to entice Ukraine under Russia's wing); but, after recent events, Dmitry Medvedev signaled on Monday that the price could be raised again. However, today we find that Ukraine's state oil and gas company, Naftogaz, has slashed gas imports from Russia's Gazprom by stunning 80% in February as Ukraine tries to show Russia it can't be pushed around of course, with limited (and more expensive) alternative supplies, we fear this could well shoot them in the foot. That and the whole being out of money thing too won't help.

Russia's earlier "default" warning (or threat) has not just impacted Ukrainian bonds but the currency is crashing. The Hyrvnia is down a stunning 6.8% today - the biggest drop since Feb 2009 - to a record low 9.8 to the US Dollar. This crisis is far from over and we would expect capital controls in 3...2...1...

Russian bonds had rallied for 2 days on the heels of the ouster of Yanukovych and a hope-fueled strategy (supported by Goldman's buy-buy-buy recommendation) that Europe or the IMF would save the day and fund them back to solvency. However, Russian deputy finance minister Storchak has a different perspective...

*UKRAINE FACES HIGH PROBABILITY OF DEFAULT: RUSSIA'S STORCHAK

And that has sent 3-month Ukraine bond prices tumbling once again...

Concerns about the possibility of the Chinese property bubble bursting affecting economic growth in China and the world is supporting gold.

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All eyes were on China overnight, where first the PBOC drained a quite substantial CNY 100 billion in liquidity via 14 day repos in the month following the biggest credit injection on record, pushing those worried about China's credit schizophrenia to the edge, and then things got even more bizarre when in an act of clear PBOC intervention, the CNY dropped to the lowest since August 2013 as concerns about the global carry trade's impact on China (as noted here previously) start to reverberate. We will have more to say about China's Yuan intervention, but what should be noted is that the Shanghai Composite has tumbled nearly 10% in the past week, and was down another 2% overnight and is once again just barely above 2000, a level it can't seem to get away from for years (which is fine: recall that the real bubble in China is not the stock but the housing market). Chinese property stocks dropped to 8-month lows as concern continues about bank's withdrawing some liquidity for the asset class.The USDJPY drifted along and after rising to a resistance level of about 102.600 has since slide just shy of its 102.20 support area which means US equity futures are now in the red, and concerns that the S&P 500 may not close at a new record high are start to worry the technicians.

Those tracking the developments in the Ukraine, and specifically the Russian response to this weekend's coup, will be interested to note that according to the Russian flot.com website, the large landing ship Nikolai Filchenkov, previously known for its participation in the Syrian naval arms build up, is expected to arrive in the Crimean port of Sevastopol carrying 200 armed soldiers, sent from the nearby Black Sea town of Temryuk.

Russia represents over 25% of Ukraine's exports and is the divided nation's largest trade partner. As Ukraine remains deep in its self-described "pre-default" state, the economy languishes vainly in the hopes of a trade deal with 'someone' and a bailout from 'someone' else. However, the IMF's first move to bail the nation out has now been met by a subtle punch to the country's kidneys as Interfax reports that Russia threatens to limit food imports on the basis of "veterinary and phytosanitary risks."

The usual interventionists in the US have long meddled in the internal affairs of Ukraine. In 2004 it was US government money that helped finance the Orange Revolution, as US-funded NGOs favoring one political group over the other were able to change the regime. These same people have not given up on Ukraine. They keep pushing their own agenda for Ukraine behind the scenes, even as they ridicule anyone who claims US involvement. If you asked most Americans how they feel, my bet is that you would discover they are sick and tired of the US government getting involved in every crisis that arises. And I bet if we asked the Ukrainians, a vast majority of them would prefer that the US — and Russia and the European Union — stay out their affairs and respect their sovereignty. So let’s keep our hands off of Ukraine and let them solve their own problems!

The Russians had dangled their multi-billion euro carrot - then swiftly removed it pending further details of who is really running the show (demanding a crackdown on the extremists who are trying to establish power). The Europeans have promised an even bigger carrot - predicated on, we presume, total abdication of sovereignty. But now the Americans are jumping in - Treasury Secretary Jack Lew "urged" Ukraine's interim leader Yatsenyuk to start talks with the IMF as he and Lagarde agreed the fund would be the best foundation for advice and financing (if sought by a fully established Ukrainian government). And the winner is...

• *UKRAINE'S KUBIV PLANS TO INVITE IMF MISSION, UNIAN SAYS

Which means only thing - Russia is locked out and gas prices are about to take off.

Prime Minister Dmitry Medvedev on Monday said Russia had grave doubts about the legitimacy of those in power in Ukraine following President Viktor Yanukovich's ouster, saying their recognition by some states was an "aberration". "We do not understand what is going on there. There is a real threat to our interests and to the lives of our citizens," Medvedev was quoted by Russian news agencies as saying. "There are big doubts about the legitimacy of a whole series of organs of power that are now functioning there."... Dmitry Medvedev said Monday, according to Russian news agencies, that the new authorities have come to power as a result of "armed mutiny," so their legitimacy is causing "big doubts."

Ever since the weekend's coup d'etat (as he called it: remember, it isn't officially a coup until John Kerry deems it so - see Egypt), Ukraine's overthrown president Victor Yanukovych (despite signing an agreement with the opposition and blessed by Europe which foresaw new legitimate presidential elections sometime after September) has been in hiding, following an aborted attempt to depart the country by plane. This is understandable: after all a warrant has been issued for his arrest. Which perhaps explains why as Gazeta.ru, citing UNIAN.net, reports his latest location is the Russian military base in Sevastopol, the one place where the Ukraine government, legitimate or not, will never dare to tread. UNIAN adds that Yanukovich will "board a landing ship of the Black Sea Fleet of the Russian Federation, which the deposed president will use to go to Russia, according to TV channel ATR."

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Global gold prices may have been manipulated on 50% of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy. Pension funds, hedge funds, commodity trading advisers, futures traders and ordinary investors are likely to have suffered losses as a result. Many of these groups were "definitely ready" to file lawsuits.

Asian equities are trading lower across the board on the back of some negative credit stories from China. Shanghai Securities News noted that ICBC and some other banks have curbed loans to developers in sectors such as steel and cement. Slower gains in home property prices in China’s tier 1 cities are also not helping sentiment. Beijing and Shenzhen prices rose 0.4% in January, which looks to be the slowest monthly gain since October 2012 according to Bloomberg. Elsewhere there are reports that a property developer in Hangzhou (Tier 2 city in China) is reducing its unit prices by 19%. Our property analysts noted that given the strong gains seen in Tier-1 and some bigger Tier-2 cities in 2013, a slowdown or negative trends in price growth should not be a surprise. Nevertheless, it has been a very weak day for Chinese and HK markets with the Shanghai Composite and the Hang Seng indices down -2.0% and -1.2% lower as we type. Across the region, bourses in Japan and Korea are down -1.0% and -0.6%, respectively.