Has the market done it again? Two weeks ago, Putin’s first speech of the Ukraine conflict was taken by the USDJPY algos – which seemingly need to take a remedial class in Real Politik – as a conciliatory step, and words like “blinking” at the West were used when describing Putin, leading to a market surge. Promptly thereafter Russia seized Crimea and is now on the verge of formally annexing it. Over the weekend, we had the exact same misreading of the situation, when the Crimean referendum, whose purpose is to give Russia the green light to enter the country, was actually misinterpreted as a risk on event, not realizing that all the Russian apparatus needed to get a green light for further incursions into Ukraine or other neighboring countries was just the market surge the algos orchestrated. Anyway, yesterday’s risk on, zero volume euphoria has been tapered overnight, with the USDJPY sliding from nearly 102.00 to just above 101.30 dragging futures with it, in advance of Putin’s speech to parliament, in which he is expected to provide clarity on the Russian response to US sanctions, as well as formulate the nation’s further strategy vis-a-vis Crimea and the Ukraine.
In addition to Ukraine, concerns are finally starting to mount over the previously reported second Chinese default in under a month, only this time the bail out wild card may be used as usual. Bloomberg reports that officials from Ningbo branch of People’s Bank of China and China Banking Regulatory Commission have joined talks on collapsed real estate developer Zhejiang Xingrun Real Estate Co., according to officials familiar with the matter. Possible resolutions include local government bailing out co., which has 3.5b yuan in debt, according to the officials.
Away from the developments in EM, today sees the start of a 2-day FOMC gathering, and the first chaired by Yellen. This will be followed by the release of the Fed’s latest economic projections as well as a press conference given by Yellen. Whilst the huge weight of Fed speak so far this year suggests another $10bn taper there is debate as to what the Fed will do with its forward guidance, specifically the 6.5% unemployment rate threshold that seems fast headed to irrelevance given the unemployment rate is hovering at 6.7%. The challenge the Fed faces is altering its guidance without leading the market to bring forward expectation of future rate hikes. Given the Fed’s seeming commitment to shrinking its asset purchases this is important as holding down interest rate expectations will increasingly become the Fed’s key expansionary tool.
Profit taking, together with touted positioning ahead of the upcoming risk events buoyed demand for safe haven assets this morning, which in turn resulted in stocks trading lower since the get-go. At the same time, the release of weaker than expected ZEW survey further reinforced the cautious sentiment, resulting in broad based selling pressure on EUR. Apart from digesting the release of the latest ZEW survey, there was little for market participants to seek direction from. However it is worth noting that it was announced that Ben Broadbent, an external member of the Bank of England’s Monetary Policy Committee, will replace Charlie Bean as deputy governor for monetary policy. Going forward, market participants will await the release of the latest US CPI, Housing Start and Building Permits data, as well as the weekly API report after the closing bell on Wall Street.
On the macro front, moments ago Germany reported a collapse – the third in a row – in the ZEW Survey, where expectations crashed from 55.7 to 46.6, on expectations of a 52.0 number. That soaring EUR is starting to really hurt Europe, but feel free to take your complaints to the PBOC which has been gobbling up EURs with panache in recent weeks, as well as the department of magic at the ECB. Aside from this we will also get US CPI (markets expecting this to be unchanged at +0.1% MoM), housing starts (consensus +3.4% MoM) and building permits (consensus +1.6% Mom)
Bulletin news summary from Bloomberg and RanSquawk:
- Cautious sentiment dominated the price action after German investor confidence fell to the lowest since August.
- German constitutional court confirms legality of Eurozone’s ESM rescue fund and upholding preliminary ruling from 2012.
- Market participants will now await the release of the latest US CPI, Housing Start and Building Permits data, as well as the weekly API report after the closing bell on Wall Street.
- Treasuries gain, 7Y and 10Y notes lead, as Fed’s two-day meeting begins today amid expectations for additional $10b cut in QE and possible changes to forward guidance and 6.5% unemployment rate threshold.
- Putin supported a request from Ukraine’s separatist region of Crimea to join Russia, defying U.S. and EU sanctions in the worst standoff between Russia and the West since the Cold War
- Germany’s ZEW Investor Confidence fell to 46.6 (est. 52) in March from 55.7 the prior month, the third straight month decline as political uncertainty in Ukraine threatens to weigh on a recovery in Europe’s largest economy
- China’s central bank and China Construction Bank held emergency talks today over whether or not to bail out Zhejiang Xingrun Real Estate, FT reports without saying where it got the information
- China’s benchmark money-market rate climbed to the highest level in almost two weeks as the central bank stepped up cash withdrawals
- Greece will probably sell bonds for the first time in four years before May as the nation seeks to rebuild its finances following an international bailout, Infrastructure Minister Michalis Chrisochoides said
- Australia’s central bank said it saw more signs record-low interest rates were boosting growth, and reiterated a period of steady borrowing costs was likely
- Ben Broadbent, an external member of the Bank of England’s Monetary Policy Committee, will replace Charlie Bean as deputy governor for monetary policy
- A snapshot of Obamacare enrollment in seven states suggests the law hasn’t significantly increased competition in health insurance markets, the Kaiser Family Foundation reported
- Sovereign yields steady. EU peripheral spreads little changed. Asian equities gain. European equity markets, U.S. stock-index futures decline. WTI crude gains, gold lower, copper little changed
