Tensions Escalate Between Russia and the West

March 18, 2014

Russian President Putin accepted Crimea’s request to be annexed, and Western economic sanctions were imposed in response, making a Russian recession virtually certain.

Malaysian Flight 370 remains missing.

More evidence emerged that Chinese economic growth faces downside risks.

Reserve Bank of Australia Board minutes point to no policy change for some time.

ZEW Institute March readings on investor confidence in Germany and the euro area weaker than expected.

The dollar strengthened 0.2% against the euro, Swissie, sterling and yuan and is 0.1% firmer against the Australian dollar.  The kiwi and loonie are unchanged.  The yen strengthened 0.3% amid geopolitically inspired risk aversion.

Following the North American rebound of stocks on Monday, share prices in the Pacific Rim gained 0.9% in Japan and New Zealand, 0.7% in South Korea, 0.5% in Australian and Hong Kong and 0.4% in Taiwan.  But stocks fell by 1.5% in Indonesia and 0.2% in China.  Over in Europe, the German Dax is down 0.4%, and the British Ftse and Spanish Ibex have edged 0.1% lower.  Equities firmed by 0.1% in Paris, Milan and Zurich.

Gold fell by 0.7% to $1,362.80 per ounce.  West Texas Intermediate oil edged 0.1% higher to $98.19 per barrel.

The 10-year German bund and Japanese JGB yields are unchanged, whereas the British gilt is down a basis point.

Chinese property prices rose only 0.3% in February, least in a half year, and decelerated to a 12-month increase of 8.7% from 9.6%.  57 of 65 cities reported higher prices on the month, down from 62 cities in January.

Chinese foreign direct investment posted on-year growth of 10.4% in January, down from 16.1% in 2013.

Not only did the Reserve Bank of Australia Board minutes endorse a neutral monetary policy bias but it also did not actively seek additional Aussie dollar depreciation.  Until February, the policy bias had favored easing.

The ZEW investor expectations index for Germany fell 9.1% 46.6 in March, its lowest reading in seven months, but current conditions went up 1.3 points further to a score of 51.3.  For the euro area, the ZEW expectations index fell by 7.0 points to 61.5, lowest since October, but current conditions were perceived 3.5 points stronger at minus 36.7.

The euro area recorded a seasonally adjusted trade surplus of EUR 13.9 billion in December after EUR 15.4 billion in November.  Exports fell for a third straight month, this time by 1.3% after drops of 0.2% in October and 0.6% in November.  The trade surplus in full-2013 of EUR 151.7 billion reflected on-year export growth of 0.8% and a drop of 3.3% in imports.  2012 had seen a surplus of EUR 73.9 billion.  47% of the rise last year in the trade surplus came from from a reduced energy deficit.

Car sales in the European Union recorded an 8.0% on-year advance in February, somewhat more than the 5.5% increase in January.

German wholesale prices declined 0.1% on month in February, posting their fourth drop in five months.  The 1.8% 12-month decline was the largest since October.  Mineral fuel wholesale prices sank 0.3% on month and 6.6% on year. 

German Bundesbank President Weidmann defended the current account surplus.  Bank of England Governor Carney and Bank of Canada Governor Poloz speak publicly later today.

New Swiss government economic forecasts now project economic growth of 2.2% in 2014 and 2.7% in 2015, along with CPI inflation of 0.1% this year and 0.4% in 2015.

Icelandic CPI inflation slowed to 0.8% last month from 1.5% in January.

Japanese machine tool orders in February were revised marginally upward to show a 26.1% on-year increase.  Such had risen 40.3% between January 2013 and January 2014.

The Central Bank of Turkey has a policy announcement scheduled today and is not expected to change its interest rates.

Scheduled U.S. data arriving today include housing starts, building permits, consumer prices, and weekly chain store sales.  In addition, the Treasury Department will report its TIC figures on capital flows with other countries.  These were supposed to get released Monday but were delayed due to DC’s snowstorm.  Canada, which knows how to handle winter weather, releases the monthly survey of manufacturing orders, sales and inventories today.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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