Obama's Latest Russian Sanctions Send Global Stocks Reeling

Tyler Durden's picture




 

Slowly but surely, all those cans that many hoped were kicked indefinitely into the future, are coming back home to roost. The biggest impact on global risk overnight have been undoubtedly the expanded Russian sanctions announced by Obama yesterday, which have sent the Russian Micex index reeling to six week lows (as it does initially after every sanction announcement, only for the BTFDers to appear promptly thereafter), with the biggest hits saved for the named companies such as Rosneft -5.6%, Novatek -5.1%, and others Alrosa -5.7%, VTB Bank -4.3%, Sberbank -3.4% and so on. Then promptly risk off mood spilled over into broader Europe and at last check the Stoxx600 was down 0.8%, with Bund futures soaring to record highs especially following news (from the Ukraine side) that a Russian warplane attacked a Ukrainian fighter jet. Not helping matters is the end of the dead cat bounce in Portugal where after soaring by 20% yesterday on hopes of a fresh capital infusion, Espirito Santo has once again crashed, dropping as much as 11%, driven lower following downgrades by both S&P and Moodys, as well as the realization that someone was pulling everyone's legs with the rumor of an equity stake sale.

Heading into the North American open, stocks in Europe are seen broadly lower, weighed on by concerns surrounding the implications that fresh round of sanctions on Russia will have on banks exposed to Eastern Europe. In terms of stock specific movers, SAP (+4.16%) bucked the trend following earnings pre-market, while Fiat (+3.68%) shares rose following reports in Manager Magazin that VW (-2.09%) and Fiat owners are exploring possible takeover deal.  3 out of 19 Stoxx 600 sectors rise; tech, media outperform, telcos, utilities underperform. 27.3% of Stoxx 600 members gain, 70.5% decline. Eurostoxx 50 -0.7%, FTSE 100 -0.4%, CAC 40 -0.6%, DAX -0.4%, IBEX -0.8%, FTSEMIB -1%, SMI -0.5%. The Italian and Spanish markets are the worst-performing larger bourses, the U.K. the best. The euro is little changed against the dollar. 

Then there is China where since the government decided to resume injecting debt, it now has to face the consequences of a monster credit bubble. And sure enough, overnight a construction company (Huatong Road & Bridge) warned that it may default on RMB400m (or US$65m) of bonds that mature on July 23rd. This would make it just the second Chinese company to default in the domestic bond market after Shanghai Chaori Solar who defaulted in March, and the first to default on both principal and interest payments (Chaori failed to meet coupon payments). Paradoxically this does show that maybe the government is continuing to impose discipline in the nascent domestic bond market which makes little sense considering latest monetary figures show the government has resumed fanning the credit bubble flames on its own. The news has had little impact on the Chinese USD credit market so far.

Looking at the day ahead, the St Louis Fed’s James Bullard will be speaking on monetary policy today (scheduled for around 6:30pm London). Although Bullard is not an FOMC voter this year, he is usually middle-of-the-road on the hawk/dove scale but his comments have gotten noticeably more hawkish in recent months. In recent months Bullard has warned that inflation may overshoot 2% in 2015 and has played down the importance of Q1’s soft GDP growth numbers. Something to watch for today. On the earnings front, Morgan Stanley reports Q2 results before the NY opening bell and Google reports after-market. The US mega banks and tech companies have set a pretty good start to the Q2 reporting season so far (relative to expectations), so it will be interesting to see if this trend can continue. Highlights on the data docket include Euroarea CPI, US housing starts, jobless claims and the Philly Fed survey.

Market Wrap

  • S&P 500 futures down 0.4% to 1967.2
  • Stoxx 600 down 0.5% to 341.2
  • US 10Yr yield down 2bps to 2.5%
  • German 10Yr yield down 3bps to 1.17%
  • MSCI Asia Pacific little changed at 147.2
  • Gold spot up 0.3% to $1303/oz

 

ASIA

Flight to quality theme dominated the session overnight, as market participants reacted to Obama approving additional sanctions on Russia and also after Chinese builder Huatong Road & Bridge Group warned of a possible bond default, which would make it the first borrower to default in China's bond market.

FIXED INCOME

Risk averse sentiment stemming from another round of sanctions on Russia saw Bunds trade higher since the open, however peripheral bond yield spreads gradually recovered initial widening bias. This tightening is in part an unintended by-product of sanctions, which will likely encourage further inflows into EU paper at the expense of US. In terms of macroeconomic data releases, the final CPI reading came in line with expectations, while ECB's Hansson said that ECB asset purchases are not imminent or needed now.

EQUITIES

Heading into the North American open, stocks in Europe are seen broadly lower, weighed on by concerns surrounding the implications that fresh round of sanctions on Russia will have on banks exposed to Eastern Europe. In terms of stock specific movers, SAP (+4.16%) bucked the trend following earnings pre-market, while Fiat (+3.68%) shares rose following reports in Manager Magazin that VW (-2.09%) and Fiat owners are exploring possible takeover deal (both companies declined to comment)

FX

Flight to quality flows saw USD/JPY trade lower overnight in Asia and in Europe this morning. Consequent USD weakness, together with likely inflows into EU related assets by Russia companies, seeking to reduce the impact that sanctions will have on operations supported EUR.

COMMODITIES

Safe-haven related flows saw gold reclaim USD 1,300 level, while palladium prices rose to 13-year highs after Russian and Ukrainian geo-political concerns became the focal point, as the US imposed more further-reaching sanctions on Russia, the world largest producer of the metal.

* * *

DB's Jim Reid wraps up the overnight event recap

A positive Wednesday session for risk has lost some momentum this morning following a couple of after-market earnings disappointments (Yum Brands, Sandisk) and news of further US sanctions on Russian firms. On the latter, the White House announced late yesterday that it was imposing sanctions on a number of Russian energy, defense and banking groups. The companies that are sanctioned include Rosneft (who accounts for 4% of the world’s crude and 8% of Russia’s GDP according to Reuters), Novatek (no 2 gas producer), two banks and eight defense firms. The sanctions would not freeze the Russian firms' assets nor prohibit most transactions with them, but will prevent the sanctioned companies from accessing US equity or debt markets for new financing with a maturity beyond 90 days. It’s unclear to what degree that this will squeeze funding for these corporates, though media reports suggest that the energy and banking groups are significantly dependent on USD funding (Reuters).

We’ll get a firmer picture on the extent this will affect sentiment in EM when Europe opens, but as we type Asian EM is trading with a slightly softer tone. There are small losses in Asian equities led by China (HSCEI -0.4%) as well as a number of EM FX bellwethers such as KRW (-0.15%) and INR (-0.1%). In China, following yesterday’s GDP print of 7.5%, the State Council has reiterated today that the government will meet its economic growth goals and pledged to further promote targeted stimulus measures in the railway, urban infrastructure and irrigation sectors. This has benefited specific names such as China Railway Construction (+0.5%) but the rest of Chinese equity market is lagging this morning (SHCOMP -0.9%). The IDR (+0.3%) is firmer, perhaps buoyed by comments from the leading Presidential candidate Jokowi suggesting that he will work more closely with Indonesia’s central bank to curb IDR volatility.

Coming back to China, a construction company (Huatong Road & Bridge) has warned that it may default on RMB400m (or US$65m) of bonds that mature on July 23rd. This would make it just the second Chinese company to default in the domestic bond market after Shanghai Chaori Solar who defaulted in March, and the first to default on both principal and interest payments (Chaori failed to meet coupon payments). Though the news is unlikely to shake markets which have become accustomed to credit issues in China, it does show perhaps that the government is continuing to impose discipline in the nascent domestic bond market - despite the stronger-than-expected June money and credit aggregates data. The news has had little impact on the Chinese USD credit market.

The S&P500 (+0.42%) climbed closer to the 2000 mark yesterday, while the Dow (+0.45%) hit a record high, buoyed by M&A activity (Fox and Time Warner) and US data (NAHB housing, benign PPI). Yesterday saw Intel (+9.3%) stock rise strongly in reaction to its after-market earnings from the day before, which dragged along with it related companies such as Microsoft (+3.8%). In terms of earnings, Wednesday was a relatively mixed day with the likes of eBay and Bank of America beating consensus estimates but disappointing in the details. Bank of America stock fell 1.9%, with markets probably spooked by the high amount of litigation charges of around $4bn or more than $0.20 per share. EPS ex litigation of $0.40 was above the $0.29 consensus estimate, but the EPS was just $0.19 once litigation costs were taken into account. Other details of the BofA result provided better comfort with FICC trading revenues up 5% on the year, which is the best result we’ve seen thus far from the US banks. NIMs were relatively solid at around 2.26%.

We’re a little more than one week into the US earnings season and so far around 49 companies have reported representing around 15% of the index market cap. The current tally has seen around 80% of companies beat consensus estimates on earnings, and around 71% do the same in terms of revenues. Both figures are above recent averages though it’s still clearly early days in the Q2 reporting season.

In Europe, the Periphery led a fairly strong session and this was sparked by a Portuguese newspaper report saying that Banco Espirito Santo's new CEO had convinced private-sector investors to inject EUR2bn into the bank. However it wasn’t clear yesterday exactly who these investors were. This follows comments from the Bank of Portugal late on Tuesday that there are certainly shareholders interested in participating in a capital increase, should the bank require it. BES’ LT2 debt rallied more than 10pts at one point yesterday, the biggest intraday jump on record, despite talk that subordinated bondholders may be required to participate in the bank’s recapitalisation (Bloomberg). The European iTraxx senior financials (-3.625bp) and subordinated financials (-5bp) indices both rallied substantially yesterday, Stoxx600 financial stocks strengthened 1.77% (vs a 1.27% gain in the Stoxx600) and BES stock itself rallied 19.74%.

In treasuries, the curve continued to flatten, though this was more driven by a rally in the long-end than any hawkish carryover from Yellen’s Tuesday Senate comments. There was nothing substantially new in Yellen’s House Committee testimony, which carried a very similar message overall to her comments at the Senate Banking Committee. Indeed, Ms Yellen’s prepared remarks were exactly the same on both days, and perhaps the main bit of new information from yesterday’s Q&A was that the Fed is continuing to discuss the framework for policy normalisation. Yellen said more details will be given on this topic later this year. In other bits of the Q&A, the Fedchair responded to a Republican proposal tying rate increases to a mathematical formula, for example the Taylor rule, saying that it’s “utterly necessary for us to provide more monetary policy accommodation that those simple rules would have suggested”. On the topic of markets, the Fedchair classified the threats to financial stability as at a “moderate, not high level”. The WSJ interviewed the Chicago Fed’s Charles Evans yesterday who reiterated Yellen’s comment that the employment picture was improving faster than anticipated, but he continued to advocate for rates to remain low into 2015 and early 2016 because inflation remained low.

Looking at the day ahead, the St Louis Fed’s James Bullard will be speaking on monetary policy today (scheduled for around 6:30pm London). Although Bullard is not an FOMC voter this year, he is usually middle-of-the-road on the hawk/dove scale but his comments have gotten noticeably more hawkish in recent months. In recent months Bullard has warned that inflation may overshoot 2% in 2015 and has played down the importance of Q1’s soft GDP growth numbers. Something to watch for today. On the earnings front, Morgan Stanley reports Q2 results before the NY opening bell and Google reports after-market. The US mega banks and tech companies have set a pretty good start to the Q2 reporting season so far (relative to expectations), so it will be interesting to see if this trend can continue. Highlights on the data docket include Euroarea CPI, US housing starts, jobless claims and the Philly Fed survey.

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Thu, 07/17/2014 - 07:09 | 4966509 basho
basho's picture

nothing new, sme s*it different wrapper

Thu, 07/17/2014 - 07:22 | 4966518 kliguy38
kliguy38's picture

I beg to differ .... this will ignite a rush away from the dollar IMO . It will force the Easts hand. Look for counterannouncement that starts the final phase of the currency wars

Thu, 07/17/2014 - 07:29 | 4966541 Latina Lover
Latina Lover's picture

Reports the anti Kiev forces in Donetsk and Lugansk are kicking Ukie army ass must be true for the Obamanation to take unilateral actions. Suck it USSA, suck it, your proxies are also losing this war, just like in the Middle East against Syria.

Thu, 07/17/2014 - 07:31 | 4966549 Winston Churchill
Winston Churchill's picture

The petulant man child in the White hut was irrational before this debacle.

Watch out when he pulls a hissy fit.

Thu, 07/17/2014 - 07:42 | 4966563 Ghordius
Ghordius's picture

Latina Lover, you are plastering your "victory news" all over ZH, with no links or sources whatsoever

below, I wrote myself that poking the Russian bear is stupid

but the Cremlin itself is - imho - not interested in a continuation of this Ukrainian revolt

in fact, as soon as Ukraine is quiet again, it can shift it's focus on Syria, where his ally is kicking his rebels' asses... in a pincher movement together with ISIS

so, again, did the "Ukies" lose territory? or did they gain territory back? facts, please

Thu, 07/17/2014 - 08:19 | 4966654 SoDamnMad
SoDamnMad's picture

Latin Lover

Russian trucks and track vehicles laden with gear are coming over the border every night along with Ramzan Kadyrov's fighters to suppliment the pro-Russian rag tags.  The goal is to wear down the Kiev forces with daily losses. All this gear isn't coming from some E Bay site. 

Thu, 07/17/2014 - 08:20 | 4966658 Eyeroller
Eyeroller's picture

Don't forget the predicted date for the US dollar "reset", July 20th, announced by Chritine Canned-Tan.

Thu, 07/17/2014 - 07:47 | 4966570 stocktivity
stocktivity's picture

It's all Bullshit!!!

Thu, 07/17/2014 - 09:40 | 4967028 Republi-Ken
Republi-Ken's picture

Are you telling me you actually believe this is REVENGE?

You think Russia is right on all this?

You think moving arms and tanks and weapons across Ukraine's border is ok?

So Russia can destabalize Ukraine and grab it?

If you believe in Russia so much, you are a little sicko. 

Its about maintiaing an order established after WWII

that international boundaries

are sacred and land grabs are not acceptable. 

19th Century colonialism is dead in the 21st Century...Putin is trying anyway.

Thu, 07/17/2014 - 07:14 | 4966512 GetZeeGold
GetZeeGold's picture

 

 

Sorta wishing the media would have vetted this guy at this point.

 

This is no place for a community organizer....we need JFK......and he's no JFK.

Thu, 07/17/2014 - 08:20 | 4966662 Eyeroller
Eyeroller's picture

Jesus Christ would have lost to Teflon Barry in 2008.

Thu, 07/17/2014 - 07:13 | 4966514 Escrava Isaura
Escrava Isaura's picture

After reading Zero Hedge for 5 minutes I was told that, there’s NO market. Stock Market it’s a sham. A casino! Should I act surprise when it starts collapsing?

Thu, 07/17/2014 - 07:18 | 4966521 GetZeeGold
GetZeeGold's picture

 

 

I wouldn't be surprised....since we've been rising on zero fundamentals for the last 6 years.

 

I guess we could just keep printing money.....what's the worst that could happen?

Thu, 07/17/2014 - 07:22 | 4966530 negative rates
negative rates's picture

Nope, you should be surprised when it doesn't though, either that or scared for your life.

Thu, 07/17/2014 - 08:39 | 4966675 Dr. Engali
Dr. Engali's picture

I will repeat myself.... There is no market and there will be no collapse. Those who hope to capitalize on a market collapse will be disappointed. When the time comes for the carpet to be pulled the 'market' will simply vaporize and there will either be nobody left standing to collect from or the 'market' will simply be shut down.

Thu, 07/17/2014 - 07:27 | 4966526 JustObserving
JustObserving's picture
Anti-Russian sanctions aimed at eliminating economic competitors — view


MOSCOW, July 17. /ITAR-TASS/. Political rhetoric on the part of US leadership conceals a very practical willingness to eliminate real and hypothetical economic competitors. Such a conclusion can be drawn from the fact the new US sanctions target the defense manufacturing industry, mineral resource production and the financial sector of Russian economy, Vladimir Gutenev, First Deputy Chairman of the State Duma Committee for Industries told ITAR-TASS.

 

“If you speak of the defense industry, the manufacturers that have been subjected to sanctions are the largest (Russian) and the most successful players on the international market of weaponry,” he said. “They shape up the portfolio of export contracts that, according to the Federal Service for Cooperation in Defense Manufacturing, exceeds $ 49 billion today — up by a factor of almost three over the past ten years.”

http://en.itar-tass.com/world/741096

 

Russia: US sanctions revenge for Ukrainian failure, Moscow may retaliate


Russia considers the latest package of sanctions against it issued by the US as revenge for the failure of Washington’s schemes in Ukraine and blackmail. Moscow reserves the right to retaliate.

http://rt.com/news/173424-us-sanctions-revenge-ukraine/


Thu, 07/17/2014 - 07:22 | 4966528 onewayticket2
onewayticket2's picture

“The 1980s are now calling to ask for their foreign policy back because…the cold war’s been over for 20 years.”    -obama

 


Thu, 07/17/2014 - 07:28 | 4966540 Ghordius
Ghordius's picture

don't poke the bear

signed, Otto von Bismarck

Thu, 07/17/2014 - 07:28 | 4966544 surf0766
surf0766's picture

collapse us and blame it on everyone else. Declare himself Dear Leader for life.

Thu, 07/17/2014 - 07:29 | 4966547 TabakLover
TabakLover's picture

Hmmmmmm........ faint nip of crash in the air ths morning.  US data at 8:30 could knock the pins out from under already shakey SP futes.....then the 6 staight days of 11am dip buying fails to materialize.....and the selling cascades thru the afternoon.

 Damn I love a good sci-fi story!

Thu, 07/17/2014 - 07:36 | 4966552 firstdivision
firstdivision's picture

Wake me when the sanctions hit Gazprom, til then, its just a side-show.

 

ZOMG moment: http://finviz.com/futures_charts.ashx?t=ES&p=m5

Reality: http://finviz.com/futures_charts.ashx?t=ES&p=d1

Honey market ain't gonna give a shit come tomorrow.

Thu, 07/17/2014 - 07:39 | 4966553 JustObserving
JustObserving's picture
Insider Trading and Financial Terrorism on Comex


Between July 14 and July 15, contracts representing 126 tonnes of gold was sold in a 14-minute time window which took the price of gold down $43 dollars. No other market showed any unusual or extraordinary movement during this period.

To put contracts for 126 tonnes of gold into perspective, the Comex is currently reporting that 27 tonnes of actual physical gold are classified as being available for deliver should the buyers of futures contracts want delivery. But the buyers are the banks themselves who won’t be taking delivery.

One motive of the manipulation is to operate and control Comex trading in a manner that helps the Fed contain the price of gold, thereby preventing its rise from signaling to the markets that problems festering in the U.S. financial system are growing worse by the day. This is an act of financial terrorism supported by federal regulatory authorities. Another motive is to help support the relative trading level of the U.S. dollar, as we’ve described in previous articles on this topic. And, of course, the banks make money from the manipulation of the futures market.

The Commodity Futures Trading Commission, the branch of government which was established to oversee the Comex and enforce long-established trading regulations, has been presented with the evidence of manipulation several times. Its near-automatic response is to disregard the evidence and look the other way. The only explanation for this is that the Government is complicit in the price suppression and manipulation of gold and silver and welcomes the insider trading that helps to achieve this result. The conclusion is inescapable: if illegality benefits the machinations of the US government, the US government is all for illegality.

http://www.paulcraigroberts.org/2014/07/16/insider-trading-financial-ter...

Thu, 07/17/2014 - 07:38 | 4966555 Quinvarius
Quinvarius's picture

No one is going to buy Espirito Santo with FACTA in full force.  All it takes is one American account and you get fined out the ass.  There is no way any private investor is going to be stupid enough to put money in there, or any foreign bank, just for that reason alone.  Aside from that, it is a money pit.  It will be a gov bailout or nothing.

Thu, 07/17/2014 - 07:40 | 4966560 CuttingEdge
CuttingEdge's picture

When Europe starts doing its sums and a stark choice between trading with Russia/China or the US is forced on them by the cretins in Washington, methinks however much Merkel enjoys taking it up the arse from Obummer and co, her population and the majority in Europe have got a big fuck you instore for the Kenyan and his handlers.

We are witnessing a slow paradigm shift in global power, as the US empire disintegrates (under the wieght of its own ever-increasing debt if nothing else) and the Chinese one starts to emerge from its ashes. What's hilarious is the manner in which it is occurring: The US administration is like a hunter blowing his own body parts off one by one with a shotgun. At least the Roman empire took about 200 years to collapse. This is just plain embarrassing.

Thu, 07/17/2014 - 07:41 | 4966561 Mitzibitzi
Mitzibitzi's picture

Well, if the opinion that Lagarde was forecasting July 20 as 'the day' with all that numerology crap is true, then we're certainly heading in the right direction. 

BBC News on the radio were just making an unnecessarily big deal about claims the Russians shot down a Ukrainian fighter plane - story really merited a minute or two to convey the facts but they waffled on about it for 3 or 4 times that. Seems there's a need to firmly implant that story in the heads of even people who just have the radio on for background noise and weren't really paying attention.

Thu, 07/17/2014 - 07:48 | 4966567 zipit
zipit's picture

Tylors: Whenever posting a "Barry imposes new sanctions" blog,
please top it with either of the following images:
(A) Boomerang,
(B) Vlad and Barry playing a board game (Vlad, Chess; Barry, checkers or bingo).
Thank you.

Thu, 07/17/2014 - 07:58 | 4966600 rsnoble
rsnoble's picture

Just got up.  I see i'm still on the same crazy ass fucking planet.

Thu, 07/17/2014 - 08:38 | 4966723 omrizario
omrizario's picture

Also Russia will impose it's sanctions ...when winter will come.

Thu, 07/17/2014 - 09:33 | 4966989 Coletrane
Coletrane's picture

all is proceeding according to plan

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