The Big Picture • So much for that crisis: Russian President Putin’s talk yesterday in which he said he saw no immediate need to invade Ukraine appeared to end the crisis as far as the markets were concerned, even though he left open the possibility of using force. Russian stocks, which were down about 11% on Monday, rose 5% or nearly half of their losses, while the RUB also recovered some (but not all) of its recent losses. Gold fell, oil fell, US 10-year bond yields rose 10 bps and the S&P 500 made a new record high, demonstrating that the global “risk off” trade was firmly reversed. The VIX index fell back to where it was on Friday, before the Russian movements. • In the currency market, the safe-haven flows into the dollar also partially reversed as the US currency lost ground against the high-beta G10 currencies (NOK, SEK, AUD and NZD), although the even safer-haven JPY and CHF were the main losers among the G10. Most EM currencies gained somewhat against the dollar as well as the fears about EM went into reverse. RUB was the biggest gainer, with HUF and PLN not far behind. Yet EUR/USD was virtually unchanged, perhaps owing to lingering concerns about Thursday’s ECB meeting or perhaps due to a widening interest rate differential in favor of the US. • I’m not sure we’ve seen the end of this crisis, but it appears that the market has already gone back to worrying about the ECB and non-farm payrolls. Late yesterday there was other news that suggested the situation is still tense. US Secretary of State Kerry outlined some steps that the US might take and Russia said it would retaliate against any sanctions, while there were further reports of troop movements, but the market totally ignored the news. I expect the US data to improve gradually and for the dollar to gain as a result. • Australia’s GDP for Q4 accelerated to +0.8% qoq from +0.6% qoq, beating estimates of +0.7%. AUD initially soared on the news, but then lost all the gains when the February HSBC/Markit service sector PMI for China came out at 51.0, up only a little bit from 50.7. • During the European day we have the service-sector PMIs for February from several European countries and the US. Both the UK service-sector PMI and the US ISM non-manufacturing composite index are forecast to have declined in February. The final data for the same month are coming out from France, Germany and Eurozone as a whole, alongside with the final Eurozone composite PMI. • From the Eurozone, we also get retail sales for January and the second estimate of the region’s GDP for Q4. Retail sales are estimated to have risen in January, after declining in December. As usual, the forecasts for Euro-area GDP are just the preliminary estimates. • In the US, the ADP employment change for February is coming out, two days ahead of the month’s Nonfarm payrolls. The report is expected to show that the private sector gained 155k jobs in February, close to the 150k NFP forecast. Although a lot of times there is a big gap between the two reports, the ADP figure is the best indicator we have for Friday’s number. Also the Federal Reserve publishes its Beige Book survey, two weeks before the FOMC meeting. • In Canada, we have the Bank of Canada interest rate decision. The market expects the Bank to maintain its policy rate unchanged at 1.00%, thus the focus will fall on comments about inflation. At the last meeting, the central bank lowered its inflation projections throughout 2014. It was noted that inflation has been lower than expected and might not return to its ideal target for about two years. The Bank will publish its updated outlook for the economy and inflation on April 16. • Two speakers are scheduled for Wednesday: Former Federal Reserve Chairman Ben S. Bernanke and Bank of England Executive Director for Financial Stability Andrew Haldane.
Posted on: Wed, 05 Mar 2014 11:30:16 +0000
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