If the big hope propelling both ES and S&P cash over 2,000 was the Ukraine-Russian talks, leading to some de-escalation and a thawing of Russian-German conditions, then it was clearly a dud. As the WSJ reports, “face-to-face talks between the Russian and Ukrainian presidents failed to produce a breakthrough for ending the conflict over eastern Ukraine, as Kiev released videos of captured Russian soldiers and rebels pushed toward a government-held city. The one-on-one session, which Ukraine’s President Petro Poroshenko described as “tough and complex,” ended early Wednesday after a day of talks on the crisis in the Belarusian capital of Minsk. Mr. Poroshenko said afterward that he would prepare a “road map” toward a possible cease-fire with the pro-Russia separatists.” In other words, absolutely no progress. There was however escalation, when overnight the September Bund future rose as much as 36 ticks to 151.18, after Poland PM Tusk said “regular†Russian troops are operating in eastern Ukraine. And so we are back to square one, with concerns over Russia pushing European bonds to new record highs, in turn leading to more US Treasury buying, while a brand new rumor of more easing from the ECB, this time by Deutsche Bank, has propped up European equities, which like US futures are trading water around the critical 2000 level.
As noted, after JPM yesterday DB was the latest bank to join in with expecting more easing from Draghi. DB’s European economists now think that ‘private’ QE will be unveiled at the next ECB’s policy meeting on the 4th September as opposed to early next year. In their view, the weak data recently and Draghi’s latest comments on inflation expectations were enough to prompt the ECB into action. They said that it will be a very close call though as an announcement could wait which will probably disappoint the markets. What they expect is not a generic QE with government bond purchases rather the ECB will engage in ABS purchasing as a complement to the TLTRO. How this is news is arguable: after all Draghi already announced this but algos need fresh headlines to keep buying, even if it is of perfectly stale data. Also, if private QE does not emerge in September, they think it will follow shortly thereafter.
As for the Russian re-escalation,”“Regular Russian units are operating in eastern Ukraine,” Poland’s Prime Minister Donald Tusk tells parliament in Warsaw, citing information from the country’s intelligence services and NATO. Poland must influence EU, U.S., Canada and NATO to conduct common policy towards Ukraine and Russia, Tusk says, adding that unilateral actions against Russia wouldn’t be wise. Is Poland also finally jumping on the “no more sanctions” bandwagon? It seems that Europe is tired of bearing the US “Costs” of containing Russia. Especially now that winter is just around the corner…
In other news, Asian equities are generally having a good day this morning with most bourses trading firmer. The Nikkei is up but as are the Shanghai Composite, KOPSI and Nifty. Away from equities, technicals remain pretty solid for Asian Credit with CDS spreads generally 1-2bp tighter on the day. All eyes are still fixated on the earnings season in that part of the world right now but it won’t be long before the new issue pipeline becomes the center of attraction again. There was not much Asian specific news flow that we think is driving the market but some supportive geopolitical headlines over the last 24 hours may have also helped.  Asian stocks rise with the Sensex outperforming and the Hang Seng underperforming; MSCI Asia Pacific up 0.3% to 148.8; Nikkei 225 up 0.1%, Hang Seng down 0.6%, Kospi up 0.3%, Shanghai Composite up 0.1%, ASX up 0.2%, Sensex up 0.4%. 9 out of 10 sectors rise with health care, tech outperforming and staples, energy underperforming
