Ukraine etc.

It’s all about Ukraine. Or rather, the spillover effect of a rise in geopolitical tensions onto volatility; of potential restrictions in gas supply to Europe; and of the macro economic impact of a deteriorating Russia.
The facts today:

* Russia unexpectedly raise rates in an extraordinary meeting, up 1.5% to 7%. The 1wk auction rate had been unchanged for 18mths {fifw NSN N1UOGK6JTSEX <go>}

* Russian stock exchange falls most in 5 years, down 10% {fifw NSN N1UQ3O6S9729 <go>}
* The Central Bank sold up to $10bn of reserves to support the Rouble, report newswires, quoting Moscow FX dealers
Key questions ahead:
+ What’s your preferred safe haven? Gold climbs over 1% but what if ultimately Ukraine has to sell its gold reserves to meet debt repayments, if neither an EU nor Russia bailout is agreed? The Yen is up 0.5% today, but the Swiss Franc has barely moved.
+ What can history tell us? The Georgia/South Ossetia/Abkhazia war was over in 3 weeks but that was August 2008 and the backdrop had Lehman liquidation looming. The previous Ukraine gas pipeline shutdown in 2009 may be more instructive
+ Where could positions become unstuck if there is flight to cash? There has been much focus this morning on the FT story that the rally in S&P has been driven by borrowed money, with margins at record highs

Wibbly Wobbly Stocks

The new year has just begun and we already know it’s not been the easiest start to the year for many. In the next 48 hours we will see if the ECB take action over stubbornly low inflation, but more importantly, will the US jobs data show that January really was some kind of one-off weather affected stumble? Or will it confirm something more persistent than just a soft patch in the US data?
Either way, you’d have to agree with the technical guru Tom DeMark’s claim that “the next two to three days are extremely critical”… even if you don’t think a crash is around the corner!
U.S. Stocks May ‘Unravel Quickly’, Tom DeMark Tells CNBC
By Trista Kelley and Andrew Cinko Feb 5, 2014 2:22 PM GMT
Tom DeMark, the chief executive officer of DeMark Analytics LLC, said in an interview on CNBC that U.S. stocks have reached an “inflection point” that resembles the period prior to the 1929 stock-market crash.
“So far, everything’s aligned,” he said. “We think the next two to three days are extremely critical.”
“If we were to get, just as an example, today were to be an up close,” he said. “And then tomorrow, we close down, and we follow a lower opening the next day and trade a little weaker. We’re probably going to unravel quickly.”
“If we get a down close today and tomorrow we open lower and trade lower, we’re probably going to unravel. We’re watching very carefully because that sequence is very important.”
The Standard & Poor’s 500 Index could plunge to about 1,100, according to DeMark. That would be a 40 percent tumble from its record of 1,848.38 on Jan. 15.
To contact the reporter on this story: Trista Kelley in London at

The Day the Fed fired the starting gun

After several months of teasing the market, the Fed finally delivered its taper. A week before Christmas, this was a punchy move. The message was clear too. In his response to the first question, Bernanke reiterated this key line from the statement: [If the data turns out as well as expected], ‘the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings’. Every time he was asked whether they might take the tapering back, Bernanke didn’t take the bait. Of course they will be flexible, he said, but let’s see how this goes first.


Equity markets seem happy to hear the economy is recovering; that the event risk over a taper has been removed without (yet) causing yields to spike. But make no mistake, this was a hawkish meeting:
– They didn’t change the 6.5% unemployment threshold. Sure, they added they’d wait until they were “well past” that level before hiking, but Fed speakers have been emphasising “threshold not trigger” since September anyway
– They didn’t add an inflation floor
– They didn’t cut the IOER
– They didn’t slash their inflation forecasts
– They did cut their unemployment forecasts – the biggest change being 2014 at 6.3%-6.6% from 6.4-6.8
– Although the median Fed voter sees 2016 rates at 1.75% from 2%, the dispersion saw some voters go for higher rates
– Although one more voter sees rates rising first not until 2016, there are still 2 who see rates rising in 2014
So two members of the board can see, now, that rates could go up within 12 months. With interest rates having been zero  for 5 years, and “lower for longer” the central bank mantra for the whole of that period, it’s easy to be lulled into thinking cheap money will be around forever. Central banks don’t want you to panic as they try to normalise. The question is, do we think the taper tantrum of June this year was just a bad dream? Or was that the moment when we started to wake up?
The rally in the dollar, and rise in US rates, suggests those markets are indeed waking up. Equities have form in lagging – after money markets froze in the summer of 2007 they rallied for another 3 months before noticing. Data will be key – not just employment now but inflation, which has hit a softer patch of late. Get ready for 2014: the year when the global economy walks out the hospital unaided and stumbles to the sunlit uplands.

The Day Today 17 Dec 2013

* George Magnus in FT: Equity bulls trust the Fed not the economy
* EBA Transparency exercise shows that as of the middle of this year, since end 2011: EU Banks Shrink Assets by $1.1 Trillion as Capital Ratios Rise {fifw NSN MXWZF46JIJW2 <go>}
* FT: Eurozone sovereign bond holdings rise
* Riksbank cuts rates 25bp and lowers its repo rate forecast
* U.K. Inflation Moves Toward BOE Target in Surprise Drop to Four-Year Low {fifw NSN MXY4GB6TTDU1 <go>}
* Bank of Japan Said to Weigh Expanding Low-Interest Loans by $10 Billion {fifw NSN MXY4FY6K50YP <go>}
* CEO of Turkiye Halk Bankasi detained by policy on corruption charges along with 21 others, hitting the Turkish lira today {fifw NSN MXY1HJ6TTDSV <go>}

The Day Today 4 Dec 2013

* Ahead of the Bank of Canada today, local press flags up potential currency impact if they decide on an easing bias:  Will Bank of Canada’s Poloz try to kick the dollar while it is down? {NSN MX91FX3PWT1C <go>}
* US vehicle sales make new post-crisis highs, 16.31m vs 15.8exp and 15.15prior
* The Times: Bank tipped to unwind QE if growth improves
* Guardian: Eurostar stake up for grabs in £10bn sell-off of government assets
* FT: Insurers to promise £25bn for infrastructure in UK
* Following on from UBS… Deutsche Bank Extends Chat Rooms Ban to Fixed Income as Well as Currencies {fifw NSN MX9XTM6JIJUV <go>} It will be back to using the phone then
* Siemens Backs Female Quotas After Departures Underscore German Gender Gap {fifw NSN MX9YPR6S972O <go>}
* Mitani, the head of Japan’s GPIF warns Abenomics might not work: World’s Biggest Pension Fund Sees Japan Fail on 2% Inflation {fifw NSN MX9RCZ6JTSE9 <go>}