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The Biggest Component Of CPI - Rent - Is Now The Highest Since 2008: What Does This Mean For Broad Inflation?

Even as the Fed laments that inflation as measured by either the hedonically adjusted CPI, or the PCE deflator measure (which on any given month is whatever a seasonal adjustment excel model says it is), is persistently below its long-term target of 2%, one component of the broader CPI basket has quietly continued risen to new multi-year highs. That would be the so-called owners’ equivalent rent (OER), which is the biggest component of the CPI, and measures imputed costs of renting one’s own home: it is currently the highest it has been since 2008. But what does this mean for broad inflation? Read on to find out why it is precisely the soaring rent, courtesy of the Fed's latest housing bubble, that means inflation will remain subdued for years to come.

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IMF Gets A Warm Welcome In Spain

Despite near record low bond yields, a surging stock market and a leadership proclaiming victory, the people of Spain appear upset at the IMF's appearance in their nation. Around 2,000 people protested in Bilbao today as the IMF (member of the infamous Troika) overturning cars and windows, graffiti-ing "IMF Out!" and held banners saying "Troika Go Home", denouncing economic policies that welcome austerity measures and the introduction of cuts. While Christine Lagarde, who attended, lauds the progress (and demands more); perhaps it is the record unemployment, record suicides, record homelessness, and record loan delinquencies that tarnish the rose-colored glasses that 'the powers that be' would prefer the general public to see the world through.

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After Ukraine, Is This Country Next?

Yields on Belarus government bonds have surged to near 10% this morning (up 130bps) and the "managed" Belarus Ruble has leaked further to new record lows against the US Dollar. One can't help but wonder what message the Russian actions are sending to other Eastern European nations but one thing is clear, capital is not comfortable there as bonds see the biggest price drop in almost 3 years.

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Gold Tops $1,350; Surges To 4-Month Highs

Gold prices are up almost 2% today, the biggest single-day jump in over 4 months as spot prices cross $1,350 for the first time since October 2013.

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ISM Manufacturing Beats; Hovers Near 8-Month Lows

Following last month's massive miss on US manufacturing, ISM modestly beat excpectations today (53.2 vs 52.3 exp.) but remains near 8 months lows. This is still the largest 2-month drop since August 2011. New orders rose but production plunged and employment was unchanged as inventories surged. Respondents fell back on blaming the weather with "conservative optimism" a standout. In addition, construction spending beat expectations in January (and December) so it seems the weather did not affect that?

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GM Channel Stuffing Rises To All Time High

Moments ago GM reported that February total sales in February dropped 1% Y/Y to 222,2014, beating expectations of a 7.7% drop (if the same beat was not matched by GM's key competitor Ford, whose February sales dropped 6.1%, below the 5.3% expected, and Volkswagen whose US sales tumbled 13.8%). The bounce was largely thanks to Buick sales which posted an 18.8% increase in February. However, the actual sales were largely irrelevant. What was notable is the following number: 805,769. This is the number of units in dealer inventory at month end. This was an increase from the 780,140 in January and is the largest ever channel stuffing print yet recorded by the post-bankruptcy GM in history.

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Russia Defends Its "Absolutely Lawful" Invasion Of Crimea

Having earlier blasted John Kerry for his "lack of analysis" of the Ukraine situation and noted that China "understands" the Russian perspective, the Russian foreign ministry has issued a further statement defending its actions in Crimea: "...through the fault of the Bandera-type groups and other ultra-nationalistic forces, the measures we are taking are adequate and absolutely lawful."

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VIX Spikes To 1 Month Highs

VIX has surged this morning above 16% - its highest in almost a month. This shift is well beyond the equity move for now as investors seek protection for their stocks and shift into bonds and gold (with the latter at 2014 highs).

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Unicredit "Temporarily" Limits ATM Withdrawals In Ukraine

It appears the bank runs - or desparate dash for cash - in Ukraine have escalated. We noted that Russian banks had already limited access but now Unicredit has issued a statement "temporarily limiting operations on cash withdrawal in ATMs, in order to provide all the clients with an access to cash money." The decision, they stress, is a temporary one (like Cyprus capital controls?) and will be cancelled with the "normalization of the situation."

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Blame It On The Weather? Personal Spending On Services Highest Ever In January

Moments ago the BEA disclosed the January personal income and spending data, which surprised to the upside on both sides: Personal Income rose 0.3% in January, on expectations of a 0.2% increase, while spending roared up by 0.4% well above the 0.1% expected. Great news right? Well, not exactly. What happened in January to account for this spending spree? The chart below of spending on Services should explain it.

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Russia Warns Kerry's "Threats Are Unacceptable" As Europe Weighs Sanctions

Russia has lashed out following comments from US Secretary of State John Kerry:


In addition, EU ministers debate freezing the assets of Ukrainians responsible for corruption and "targeted measures" against Russia if no change of course is undertaken.

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Russian Stocks Crash As Central Bank Scrambles, Hikes Rates Most Since 1998 Default

Following a 150bps rate hike by the central bank - the largest since the 1998 default -desperate to halt capital outflows and a collapsing currency, Russian stocks have crashed led by some of the country's largest banks. USDRUB rose to just shy of 37 - the weakest RUB rate on record - but rallied back a little on the rate hike but the MICEX stock index tumbled 11% to almost 2-year lows with Sberbank (Russia's largest bank) down 17% and VTB (2nd largest bank) down 20%. Between the threat of economic sanctions from the West and simple risk-aversion-based capital flight, as one analyst noted, "uncertainty risks a further escalation in domestic capital outflow."

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Ukraine's Prime Minister Speaks

Ukraine's acting PM Arseniy Yatsenyuk speaks. Highlights below:

  • UKRAINE PM SEEKS TO INCREASE RESERVES TO EASE FX FLUCTUATIONS - "Whatever it takes", even printing dollars
  • UKRAINE PM SAYS NAFTOGAZ SHOULD BE PRIVATIZED - Ukraine oligarchs delighted by this development
  • UKRAINE PM SAYS NEW GOVERNMENT HAS NO INTENTION OF NATIONALISING PRIVATE COMPANIES" - Ukraine oligarchs even more delighted by this development

And finally, why all the above was irrelevant:


Oh well, as long as it fools those USDJPY ramp algos if only for a few minutes.

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Frontrunning: March 3

  • Russian markets hit as Putin tightens grip on Crimea (Reuters)
  • Ukraine Sees More Russian Incursions as Standoff Worsens (BBG)
  • Ukraine Crisis Roils Global Markets (WSJ)
  • Cold War Ghosts Haunt East Europe in Moves for Crimea (BBG)
  • How Moscow Orchestrated Events in Crimea (WSJ)
  • Russia Gas Threat Shows Putin Using Pipes to Press Ukraine (BBG)
  • Euro-zone PMI slowed less sharply than estimated (MW)
  • Two top Microsoft execs to leave in reshuffle (Reuters)
  • Soaring Luxury-Goods Prices Test Wealthy's Will to Pay (WSJ)
  • IQ-Boosting Drugs Aim to Help Down Syndrome Kids Learn (BBG)
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Ukraine Accuses Russian Fighter Jets Of Violating Its Airspace

Infantry, navy, and now air force. At least according to the Ukraine, which reported that Russian fighter jets twice violated Ukraine's air space over the Black Sea during the night, Interfax news agency quoted the Defence Ministry as saying on Monday. It said Ukraine's air force had scrambled a Sukhoi SU-27 interceptor aircraft and prevented any "provocative actions" but gave no further details. That was just the cherry on top to what has already been an exhausting day for risk in Russia and the Ukraine, both of which saw their currencies tumble to all time lows.

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