The more the West attempts to "isolate" Russia and pushes it away from its "core values" and of course the US Dollar, the more Russia will seek the safety of a non-dollar based system. We have previously described how Putin has been scrambling to enmesh Russia in tight bilateral commodity-based trade with both China and India, and now it is Russia's turn to announce it would seek its own "national payment settlement system" following last week's surprising and unmandated service halts by both Visa and MasterCard, which as Vladimir Putin said earlier today, will be a "bid to reduce economic dependence on the West."
The moment of truth is arriving...
- BOE to Sign Agreement With China on Yuan Clearing Next Week (BBG)
- U.S. law firm plans to bring suit against Boeing, Malaysia Airlines (Reuters)
- Citigroup Fraud Stings Mexico Star as Medina-Mora Chased (BBG)
- Fraternity Chief Feared for Son as Hazings Spurred JPMorgan Snub (BBG)
- UBS suspends six more forex traders (FT)
- Goodbye CSCO Q1 EPS: China to strengthen Internet security after U.S. spying report (Reuters)
- Good luck: Spain Banks With $55 Billion of Property Seek Deals (BBG)
- Citic Pacific Said to Plan About $4 Billion Public Offering (BBG)
- Yahoo Japan to buy eAccess from SoftBank for $3.2 billion (Reuters)
- "Whatever it takes" to talk down the Euro: Euro, peripheral bond yields fall on ECB easing debate (Reuters)
Let the fun begin.
After tumbling overnight to just around 101.80, the USDJPY managed to stage a remarkable levitating comeback, rising all the way to 102.3, which in turn succeeded in closing the Nikkei 225 at the highs, up 1% after tumbling in early trade. The Shanghai Composite was not quite as lucky and as fear continue to weigh about a collapse in China's credit pipeline, the SHCOMP was down more than 0.8% while the PBOC withdreww even more net liquidity via repos than it did last week, at CNY 98 billion vs CNY 48 billion. That said, this morning will be the fifth consecutive overnight levitation in futures, which likely will once more surge right into the US market open to intraday highs, at which point slowy at first, then rapidly, fade again as the pattern has seemingly been set into algo random access memory. Which in a market devoid of human traders is all that matters.
With copper, iron-ore, soybeans, and nickel all tough to carry when you need liquidity from your commodity-financing deals; it appears the Chinese people have turned to more spectaculr methods of moving 'wealth'. As The South China Morning Post reports, just week after a man was stopped at the China-Hong-Kong border with 4 kilograms of gold in his shoes, customs officers caught a man smuggling more than 7000 diamonds in plastic bags in his underwear. The tell, officers noticed he was walking in a pculair manner.
International discord over Ukraine does not bode well for the settlement of differences over the IMF’s future. Though the G7 is excluding Russia from its number, in retaliation for its action in Crimea, this does not amount to isolating Russia. There has been no suggestion that Russia be excluded from the G20. The USA and its allies have suspected that several other G20 members would not stand for it. This suspicion was confirmed yesterday when the BRICS foreign ministers, assembled at the international conference in The Hague, issued a statement condemning ‘the escalation of hostile language, sanctions and counter-sanctions’. They affirmed that the custodianship of the G20 belongs to all member-states equally and no one member-state can unilaterally determine its nature and character. In short, their statement read like a manifesto for a pluralist world in which no one nation, bloc or set of values would predominate.
Looking ahead at the next couple of weeks, Citi's Stephen Englander sees multiple sources of risk which he does not think are fully priced in. Most of these risks appear to be asset market negative, involving higher US rates, more geopolitical disruption and downside economic shocks.
30Y yields are now over 10bps below post-Yellen spike highs as growth-hope-driven US equities were monkey-hammered in another pump-and-dump deja vu day - with one difference - no late-day bounce to provide solace for the bulls. The Nasdaq and Russell 2000 are down over 3.5% from Yellen; Biotechs broke to new lows (down over 14% and below the 100DMA); momo names were slammed (FB) as King IPO's and lost over 15% on the day. The Nasdaq and Russell have joined the Dow in the red year-to-date, S&P and Trannies barely positive. The USD lost ground on the day after early strength. Gold, silver, and copper fell notably. VIX jumped from 2-month lows to back over 15%. USDJPY was sin charge all day - and broke below the key 102 level into the close.
This is the way the world ends Not with a bang but a whimper. ~ T. S. Eliot
Yesterday we showed the end result of what happens in a China, in which bankruptcy and default are suddenly all too real outcomes for the country's hundreds of millions of depositors, when the risk of losing all of one's money held in an insolvent bank becomes a tangible possibility in "What A Bank Run In China Looks Like: Hundreds Rush To Banks Following Solvency Rumors." Today, we look in detail at all the discrete elements that culminated with hundreds of Chinese residents lining up in front of a bank in Yancheng and rushing to withdraw their money only to find their money not available (at least until the regional government was forced to step in with a bail out to avoid an even greater panic).Why is this a useful exercise? Because since we will certainly see many more example of it in the near future, it pays to be prepared. Or least it certainly prevents one from losing all of their money...
With Switzerland long dead as an offshore tax haven for US savers unwilling to fund Uncle Sam's central-planning machine (and who can blame them - isn't monetizing the deficit precisely what the Fed is for?) and with Cyprus banks, shall we say, compromised, many have been forced to look for greener tax-evading pastures, as far away as the Pacific Rim, especially that oasis of mega wealth creation, Hong Kong. Only this time the US is paying attention as SCMP reports that Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washington's global crackdown on tax evasion. In other words, for tax purposes, Hong Kong is now effecitvely under IRS control.
Russia has increased its gold holdings by 7.247 tonnes to 1,042 tonnes in February. Turkey and Kazakhstan also raised their bullion reserves, data from the International Monetary Fund showed today. Turkey's gold holdings rose 9.292 tonnes to 497.869 tonnes, the data showed. Many analysts are ignoring the important context of today's new geopolitical backdrop. Russia alone has some $400 billion in foreign exchange reserves - mostly in U.S. dollars. If they were to diversify just 5%, worth some $20 billion, of those reserves into gold - it would be equal to nearly 500 tonnes of gold or nearly 25% of global annual production. It will be interesting to see what Russian demand is in March and indeed in the coming months. Sanctions could lead to materially higher demand from the Russian central bank, Bank Rossii.
- One-Ship Ukraine Navy Defies Russia to the End (WSJ)
- Crimea-Induced Trading Surge Stokes Moscow Exchange Rally (BBG)
- Moscow says Ukraine stops Russian crews disembarking in Kiev (Reuters)
- New images show more than 100 objects that could be plane debris (Reuters)
- Anger of Flight 370 Families Explodes in Beijing (BBG)
- Murdoch Promotes Son Lachlan in Succession Plan for Empire (BBG)
- Facebook to buy virtual reality goggles maker for $2 billion (Reuters)
- Syrian Regime Exploits Rebel Despair (WSJ)
- King Digital IPO price may not bode well for stock (Reuters)
- Rothschild in Twitter Spat as Bakries Cut Ties With Miner (BBG)
Another morning melt up after a less than impressive session in China which saw the SHCOMP drop again reversing the furious gains in the past few days driven by hopes of more PBOC easing (despite China's repeated warning not to expect much). A flurry of market topping activity overnight once again, with Candy Crush maker King Digital pricing at $22.50 or the projected midpoint of its price range, and with FaceBook using more of its epically overvalued stock as currency to purchase yet another company, this time virtual reality firm Oculus VR for $2 billion. Perhaps an appropriate purchase considering the entire economy is pushed higher on pro-forma, "virtual" output, and the Fed's capital markets are something straight out of the matrix. Despite today's pre-open ramp, which will be the 4th in a row, one wonders if biotechs will finally break the downward tractor beam they have been latched on to as the bubble has shown signs of cracking, or will the mad momo crowd come back with a vengeance - this too will be answered shortly.