Month: December 2018

Satellite images from Sunday obtained by Fox News confirms that Russia has deployed an S-400 surface-to-air missile battery at Dzhankoy airbase in Crimea, roughly 19 miles from the Russia-Ukraine border. The photos confirm Russia’s planned deployment which we reported on Wednesday.

The intelligence report by ImageSat International indicates that the infrastructure for the S-400 battery was prepared in recent months, a long time before last weekend’s naval encounters that sparked new tension between Russia and Ukraine.

The images showed a bare ground in April 2018, and construction by November 10 – two weeks before the recent escalation. –Fox News

The S-400’s eight launchers can be seen in four groups located in the southwest region of the airbase, while two radar systems are deployed in two nearby vehicles – one of which is suspected to be carrying S-400 missiles. 

Days after Russia captured several Ukrainian naval vessels along with 24 sailors, Moscow announced the deployment of the S-400 system, escalating the conflict in the region. Ukraine, which is now in a state of martial law over what President Petro Poroshenko calls the “threat of a full-scale war with Russia,” says that “the number of [Russian] units that have been deployed along our border has grown dramatically.” 

Though likely the plans were already in motion, the timing of the S-400 deployment announcement is designed to send a strong message to the West, which is also building up its forces as both the UK and US are reportedly injecting more military hardware and troops into Ukraine. 

The S-400 mobile missile system has an effective range of nearly 250 miles and is intended to bring down a variety of aerial threats – “from aircraft to cruise and ballistic missiles,” according to Fox. 

The system made its debut in 2007, succeeding the S-200 and S-300 batteries. According to CNBC, “the Russian-made S-400 is capable of engaging a wider array of targets, at longer ranges and against multiple threats simultaneously,” vs. US-made systems. 

In terms of capability, one source noted that while there is no perfect weapon, the S-400 eclipses even THAAD, America’s missile defense crown jewel.

When asked why nations seek to buy the S-400 instead of America’s Patriot or THAAD systems, one of the people with knowledge of the intelligence report explained that foreign militaries aren’t willing to stick with the cumbersome process of buying weapons from the U.S. government. –CNBC

During this weekend’s G20 meeting in Buenos Aires, Russian President Vladimir Putin said that it was “too early” to release the Ukrainian sailors, saying that it was necessary to hold the sailors captive while a legal case was constructed that would show that the three Ukrainian naval vessels were in violation of Russian territorial waters – and that the ship’s logs would reveal their attempt to cross the Kerch strait from the Black Sea into the Sea of Azov, which is enclosed by Russia, the Crimean peninsula and mainland Ukraine. 

When asked if the Kremlin might be willing to exchange the sailors for Russians detained by Ukraine, Putin replied: “We are not considering a swap and Ukraine did not raise this issue, and it’s too early to talk about that. They are still being investigated. We need to establish the fact that this was a provocation by the Ukrainian government and we need to put all these things on paper.” 

Putin also suggested that the incident was part of a wider pattern of provocation by Kiev. 

“The current Ukrainian leadership is not interested in resolving this at all,” said the Russian leader. “As long as they stay in power, war will continue. Why? Because when you have provocations, such hostilities like what just happened in the Black Sea … you can always use war to justify your economic failures.” 

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American drug overdose deaths surged above 70,000 in 2017, a 10% jump to a new record as life expectancy across the country plunged for the second time in three years, according to a government report out Thursday.

CDC Director Robert Redfield said the data was deeply “troubling.”

“Life expectancy gives us a snapshot of the Nation’s overall health and these sobering statistics are a wakeup call that we are losing too many Americans, too early and too often, to conditions that are preventable,” Redfield said in a statement Thursday, adding that the decline in overall life expectancy is linked to the accelerated rise in deaths from drug overdose and suicide.

Suicide rates moved higher, by about 3.7%. Together, these two causes of death decreased US life expectancy for the second year in a row, the CDC reported. As shown in the graphic below, most of the drug overdoses are occurring in deindustrialized regions of the country, including Rust Belt states and parts of the Mid Atlantic and North East.

Age-adjusted drug overdose death rates, by state: US, 2017

Overall life expectancy for Americans was 78.6 years in 2017, a reduction of 0.1 years. While the drop might not seem like much, life expectancy tends to rise, not reverse, which suggests the continuation of decay within the middle class.

The death rates are driven by a 9.6% jump in drug overdose deaths, from 63,632 in 2016, to 70,237 in 2017. Most of the overdoses involved opioids and or opioid analogs.

Age-adjusted drug overdose rates: US, 1999-2007

“West Virginia (with 57.8 overdose deaths per 100,000 people), Ohio (46.3 overdose deaths per 100,000), Pennsylvania (44.3), and the District of Columbia (44 ) had the highest observed age-adjusted drug overdose death rates in 2017,” the CDC report states.

NBC notes the increase was not as significant as the 21% jump in drug overdose death rate between 2015 and 2016. But warns since President Trump labeled the opioid crisis a “health emergency,” with increased federal, state and local efforts, the epidemic continues to spiral out of control.

Suicide rates are another concern. “The suicide rate in the United States has increased from 10.4 suicides per 100,000 in 1999 to 14 (per 100,000) in 2017,” a second CDC report reads.

“Suicide rates have increased since 1999 for both males and females ages 10-74. Rates in the most rural U.S. counties are nearly two times higher than rates in the most urban counties.”

“This increase in the suicide rate is extremely discouraging,” said Dr. Christine Moutier of the American Foundation for Suicide Prevention. “Until we scale up intervention efforts at the community, state and national levels, we will likely continue to see an increase in suicides in the United States.”

Age-adjusted death rates for the 10 leading cause of death: US, 2016 and 2017

The case can be made that, contrary to the administration’s claims of “the greatest economy ever,” the American economy is not quite that robust. The record levels of drug overdoses, elevated suicide rates, and life expectancy declines show that something is seriously wrong just below the surface of the otherwise strong economy. 

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For now, FX markets remain the only ‘liquid’ course of reflection on the Trump-Xi trade-truce ‘deal’ and China’s offshore yuan has spiked over 6 handles (back below 6.90/USD) implying a solid jump at the open for US equity futures…

A big jump for sure in offshore yuan but remains well below the early Nov spike highs…

On a side note, JPY has weakened, but remain unable to erase all of Powell’s dovish speech surge…

 

And extrapolating from last week’s moves, offshore yuan implies an open for S&P futures around 2800…

Which, as we noted earlier, is exactly in line with one “base case” which correctly predicted that a Truce – in which existing tariffs stay in place – is the most likely outcome (with a 70% chance), while also accurately predicting a 3 month ceasefire, the agreement will be enough to get the S&P to 2,800…

… so look for a burst of buying in the S&P over the next 24 hours which pushes the stock index higher, but not much higher as trader concerns will next revert back to the Fed which now that trade tensions have been temporarily removed, may promptly revert back to its hawkish bias and resume rising rates well into 2019 which in turn will be the next bearish event-risk to put a damper on any substantial Christmas rally.

And while spread-betting markets are signaling around a 250 point gain at the open for the Dow…

It is clear that there is little follow-through since the initial spike.

We await the algos open to see just what can be made of this so-called ‘truce’.

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Via Dana Lyons’ Tumblr,

Formerly lagging equal-weight indices are attempting a comeback — a development which would bolster the odds of a significant rally.

This past summer, we began detecting signs of a thinning out of the U.S. equity rally, a trend which would eventually contribute to the recent market correction. One manifestation of that internal weakening was seen in the various “equal-weight” indices that we track, as noted in a late July post.

As the name implies, the equal-weight average weighs each of an index’s components the same, in contrast to popular cap-weighted indices which place more weight on larger stocks. Cap-weighted averages can give one a distorted view of the health of the broad market at times if they are being unduly influenced by a relatively small number of stocks. On the other hand, an equally-weighted index can give us a better sense of the level of participation across the entire index.

The benefits of widespread participation (and vice versa) can be seen in a ratio of an equal-weight index to its cap-weighted counterpart. For example, see this chart of the performance of the Invesco S&P 500 Equal Weight ETF (ticker, RSP) vs. its cap-weighted counterpart, the S&P 500 SPDR ETF (SPY). As you can see, when the ratio was heading higher (i.e., the equal weight RSP was out-performing), stocks trended higher. However, when the RSP has declined on a relative basis, we have tended to see the stock market suffer — as it has over the past several months.

We can see the same general tendency in the ratio between the First Trust Equal Weight Nasdaq 100 ETF (QQEW) and the cap-weighted Invesco Nasdaq 100 ETF (QQQ). Though, given the overall dominance of the QQQ over the last dozen years, it is easier to see the benefits of the QQEW when the ratio is rising, e.g., coming off of the 2009 low and during the 2013 surge.

Unfortunately, as we mentioned, the equal-weight indices have struggled on a relative basis for most of the year, foreshadowing the recent rough patch in the market. However, they are presently attempting to stage some positive progress toward erasing at least the most recent deterioration suffered over the past several months. To wit…

In the July post, we mentioned that the RSP:SPY ratio was breaking down to new 5-year lows, below the former lows from 2016 and early 2018. That opened the way to a more accelerated decline in the ratio — and the swift recent selloff in the market as as whole.

At present, however, the RSP:SPY ratio is attempting to reclaim that breakdown area, a development which would likely be a sign of improving internals — and perhaps a tailwind for the market.

We are seeing a similar development in the QQEW:QQQ ratio. In this case, back in May, the ratio dropped below a trendline connecting (and supporting) a series of lower lows in the ratio going back to 2008. This too led to a swifter decline in the ratio, contributing to the recent sharp declines in the Nasdaq and technology sector.

However, as with the RSP, the QQEW:QQQ ratio has jumped in recent weeks and is challenging its former breakdown level.

Now, at times, these equal-weight ratios can see swift improvement during portions of a market correction when market participants begin to punish the largest caps to “catch up” to other stocks to the downside. However, in this case, the relative improvement in the equal-weight indices has occurred since the initial correction low in late October. That gives us some measure of optimism that this latest improvement in the broader market is legit.

The key, though, is what transpires at the breakdown levels of the respective ratios. Should they decisively reclaim the former breakdown levels, it should be a good sign for stocks in the short to intermediate-term. Should they fail here and resume their downtrends, it would be a sign that all is still not healthy in the broader market. We will continue to monitor these developments and provide updates in our AM Daily Strategy Sessions at The Lyons Share.

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Last week, Americans learned depressed commodity prices and the escalating China-US trade war had sparked a farm bust across the Midwest region, sending farm bankruptcies to levels not seen since the great financial crisis.

Farmers fear China will never return to US soybean markets, as they have now explored new sources in South America.

According to Hellenic Shipping News, new evidence shows the US is “about to lose its leading position in global soybean exports to South American countries in 2019 as China seeks new import sources” because of President Trump’s trade disputes with China. 

Argentina, a significant global soybean producer, will dramatically boost its soy exports to China from an average of 7-8 million tons in the last several years, up to 10-15 million tons in 2019, Nicolas Pawlusiak, a spokesperson with the Rosario Board of Trade, which is based in Argentina, told the Global Times last week.

Pawlusiak said the growth in soybean exports from South American countries is directly due to the decline in US exports to China.

US-China trade war shifts soybeans destinations 

“China, normally the destination for 60% of all US soybean exports, slashed imports after raising tariffs on US shipments on July 06,” reported Reuters. 

“Total soybean production in Argentina in 2019 is expected to be more than 50 million tons, of which 15 million tons are for the export market, most of which will be sold to China. It’s twice the average of the past five years,” Pawlusiak said.

Zou Yesheng, deputy general manager of COFCO International Argentina, said that China’s soybean imports from Argentina would be around 10-12 million ton next year. The US exported about 30 million tons to China annually in past years, he added.

Brazil, another winner in the trade war, is expected to produce record amounts of soybean in the 2019 growing year and will increase its exports to China.

The difference between US exports prices for soybeans and Brazilian exports remains wide

The surge in production from South America will directly challenge the US’ leading roll in global supply. This would lead to larger US soybean inventories, as farmers would come under severe financial pressure, thus amplifying the farm bust in 2019.

Pawlusiak said if President Trump’s trade war with China continues to escalate, South American soybean exports would move much higher and have even more damaging effects on US farmers.

The US government had recently stepped in, trying to cushion angry farmers whose livelihoods have been blown up by Trump’s trade war, which by the way, could turn out to be a significant policy error as the US economy enters a slowdown. The USDA announced a $6 billion bailout that gives farmers relief aid, but the real concerns have yet to come, as it seems 2019 will be a turbulent year for the American farmers. 

Video: Nebraska Farmers Feeling Impact Of President Donald Trump’s Trade War 

 

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Authored by Peter Tchir via Academy Securities,

It’s Either Tied in Bottom of 9th or in Extra Innings

I guess we should continue with Friday’s T-Report theme of treating the President Trump and President Xi meeting as though it was a baseball game.

From Friday

We walk in a run.  The game goes on, possibly to extra innings.  The real-world equivalent is some promise by China to reduce the trade deficit, us putting on hold any new or increased tariffs and both sides agreeing that Intellectual Property rights are important and that both sides agree to focus on…

…This is my highest probability scenario. 

As far as I can tell from the press coverage I’ve seen

• China agreed to buy more agricultural and commodity goods (as we’ve been suggesting all along is part of the ‘easy’ deal)

• We agreed not to go ahead with the scheduled tariff increases (which were hurting us as well)

• Both sides have agreed to talk more with what seems like a 90 day target for progress (though a timeline that could easily be extended again)

Is this ‘Deal’ Good Enough for Markets?

It seems like this should be good enough for markets to continue with the rally that took S&P 500 and Nasdaq up 4.9% and 5.6% respectively on the week.

I think the outcome is marginally better than what people were pricing in and took some of the disaster scenarios off the table.

I would expect VIX to collapse now that the biggest wildcard is either off the table or at least postponed.  (Brexit and Italy while moving Europe around seem to have lost their ability to whip U.S. markets back and forth – for now).  We have Mueller and the change in the House in January to deal with on the domestic front – but that seems to be a few weeks away, which in this choppy market, can seem like a lifetime.

The biggest driver could be the market’s view, which we share, that Powell is trying to walk back a little on the dogmatically hawkish side (though part of this apparent change makes perfect sense for a data dependent Fed that is seeing the data weaken).

Corporate bonds were noticeably weak and an outlier on Friday.  Despite the S&P 500 and Nasdaq both gaining about 0.8%, the CDX IG index was a ½ bp wider on the day, high yield was down roughly a ¼% depending on whether you looked at CDX HY or the big HY ETFs.  The leveraged loan market bounced a little (at least BKLN did) but floating rate IG corporate bonds continued to trade poorly. 

The Bloomberg Corporate bond OAS moved out 2 on Friday to 137 (from 109 in the middle of October), and it probably understates the weakness as the bond indices tend to lag their traded Beta counterparts when tracking moves to the downside (for example, corp bond spreads widened according to the index on Wednesday while CDX IG gapped 5 bps tighter and even the often ignored LQDH rallied). 

If VIX can come down and the new issue calendar can show signs of slowing into year-end, credit should be able to turn around – but since its weakness on Friday was noteworthy, across the board, we will be watching that closely.

Bottom Line

Assuming the reporting we have seen so far is accurate, this deal, coupled with some oversold technicals and generally favorable seasonality, I’d expect a moderate risk-on move to begin.  

But, since I am already trying to think about what could derail this move, and when to start cutting back on risk again, I think the rally won’t be as big or long lasting as I’d like to see.

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First it was the “gifts affair” and the “Yediot Aharanot Affair”, now Israeli Police have recommended for the third time this year that Prime Minister Benjamin Netanyahu be indicted for purportedly accepting bribes from a media mogul in exchange for favorable policy decisions in what has become known as the “Bezeq Walla Affair”.

A statement posted to Twitter by the Israel Police affirmed that there is credible evidence that Netanyahu and his wife Sarah Netanyahu (who was also indicted separately for fraud in a scandal known as the “Prepared Foods Affair”) accepted bribes from Shaul Elovitch, the owner of Israel’s largest telecoms firm, Bezeq. Elovitch also owns the “Walla” news website.

הסתיימה חקירת תיק 4000: עם סיום החקירה עמדת משטרת ישראל והרשות לניירות ערך היא כי נתגבשה תשתית ראייתית מספקת לביסוס החשדות נגד המעורבים העיקריים בפרשה. נגד רה”מ בנימין נתניהו התגבשה תשתית ראייתית מספקת לביצוע עבירות של לקיחת שוחד, מרמה והפרת אמונים וקבלת דבר במרמה בנסיבות מחמירות

— משטרת ישראל (@IL_police) December 2, 2018

In the statement above, the Israeli police said, now that the investigation has been concluded, that sufficient evidence has been gathered to support bringing charges against Netanyahu for accepting bribes. Police could also bring charges for fraud and “breach of allegiance.”

As RT explains, Netanyahu is accused of firing Communications Ministry Director-General Avi Berger and hiring ex-Netanyahu campaign manager Shlomo Filber to help guarantee special treatment for Elovitch and his companies. In exchange, Netanyahu and his wife struck a deal with Elovitch for favorable coverage on his news website (as we noted a few months back, Filber has agreed to testify against Netanyahu in the government’s corruption case).

In a separate statement, police accused Netanyahu of intervening in the news coverage on Walla “sometimes on a daily basis.”

“Netanyahu and those close to him bluntly intervened, sometimes on a daily basis, with the content being published on the Walla news website, and sought to influence the appointment of senior employees (editors and reporters), while using their ties to Shaul and Iris Elovitch.”

Netanyahu Responds

In response to the recommendation, the prime minister denied the charges, but said he wasn’t surprised that the police had decided to take them public.

“These recommendations were decided on and leaked even before the investigations began,” the statement said. Netanyahu also expressed confidence that “authorized officials” will not press forward with the case, concluding instead that “there was nothing because there is nothing.”

Police also recommended that charges also be brought against Elovitch and his wife. 

Netanyahu has already been declared a “political corpse” by both his allies and political opponents. Now, it’s up to the State Prosecutor’s Office to decide whether to officially bring charges.

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Authored by Sven Henrich via NorthmanTrader.com,

Our job is to navigate changing markets and we use technical and macro analysis to identify major market turns amidst periods of conflicting signals, emotional markets and often high uncertainty while staying keenly aware of risk to our thesis at any give time. In last weekend’s Bear Trap we discussed the technical signals that suggested a large rally could unfold and outlined some of the macro triggers that could light a fire under these markets. “Bears watch out” I stated. Indeed US markets responded with the strongest weekly bounce in 7 years as one of the triggers, the Fed, came through. A second trigger may have been pulled this weekend (China) giving markets license to rally further.

In this edition of the Weekly Market Brief I’ll review the facts and then outline some going forward considerations.

Let’s start with the technicals.

On twitter and in last weekend’s brief I outlined the technical case for a rally targeting MA reconnects:

On Friday $ES reconnected with its 200MA:

An over 5%, 130+ handle move off the lows in a matter of days.

I had also outlined the $NDX forming a potential bullish wedge and a positive divergence on the internals. Here’s the follow up chart:

One could argue that the internals have yet to show a dramatic improvement and that may be a red flag. But fact is the wedge pattern has remained very clean technically speaking as of now and a break above would suggest higher prices to come.

Especially as it fits with the historic oversold readings on tech that I outlined last week. Follow-up:

This chart is still vastly oversold and suggests it has a lot of potential room to rally higher still.

As you can see the monthly trend line also held last week, an important consideration going forward. I’ve outlined several of these trend line saves in “Saved Again” yesterday and you can see them there.

For this discussion I just highlight again the chart of the Dow Jones Global index:

If this is indeed a bull flag then bears may be in major trouble, especially considering as these types of potential bull flag patterns are visible on other charts as well:

$NYSE:

$XLF:

So let’s hone in on some reality here: Bears have failed to break these trends for now. Trend lines have held, even in individual stocks such as $AMZN.

Here’s the follow up to last week’s $AMZN chart, a strong reaction:

On $SPX bears again failed to make lower lows. $SPX throughout 2018 has now printed a series of higher lows:

And that’s a big fat problem for bears in the here and now, especially as some of the signal charts now overtly suggest that there is a lot of potential room to rally. Here’s a follow-up to the equal weight chart I highlighted last week:

In fact, based on all of the above I could even make the case for new highs to come targeting that elusive 2.168 fib target discussed in January:

After all, the 2009 trend line has held twice and the monthly 20MA (the middle monthly Bollinger band) has also held twice as support. Big support confluence. So why not new highs, especially if the macro tiggers go in favor of bulls.

And from the looks of it they are.

Let’s start with the Fed.

Last week I outlined the following:

“In lieu of a major global market rally emerging soon the Fed is increasingly penciled in for a dovish rate hike in December, meaning they raise rates, but then signal a slowdown or pause in rate hikes for 2019. What? You really think the Fed wants to be responsible for a stock market crash into Christmas? Hardly. Lest not forget Janet Yellen famously caved on her 4 rate hike schedule penciled in for 2016 when global markets got hammered in early 2016.”

And boy did the Fed cave and rate expectations dropped like a brick:

Now the Fed may all think we’re stupid, but I can look at charts, price and timing of Fed reaction and you tell me if this is not a perfect script replay:

Really? REALLY? A month ago the Fed was all confident and insistent on their rate hike schedule. Just like Janet Yellen was in December of 2015 during her first rate hike only to cave 2 months later after markets were dropping firebombs everywhere. Her caving came after the January counter rally failed and stocks were dropping again into February. Powell just caved after the October counter rally failed and stocks were dropping again in November.

So either this is a giant coincidence or Powell just pulled a Yellen at precisely the same time giving markets again a license to rally.

Last weekend I also I outlined another bear trap trigger:

‘“We agree to” are the 3 magic words that would cause a buying bonanza if they are uttered in some form during the G20 meeting between President Xi and President Trump next weekend. Never mind the details, any real sign of progress (not the fake teaser headlines that markets no longer take seriously) and it’s off to the races.‘

And folks, here’s your “agree to” headline:

US, China agree to 90-day truce to hash out trade differences:

“It’s an incredible deal,” Trump told reporters aboard Air Force One”

In The Summit I stated: “Trump needs a perceived win”.

Now he has one and is positioning it as such even though there is no deal. Just a truce or pause perhaps.

And spread market futures are indicating a sizable gap up as of this writing hours ahead of official futures open tonight (subject to change):

Bottomline: Speaking technically, and in context of the now emerging triggers, bulls have now a license to rally this market and they could rally it all the way to new highs into Q1 2019 with the prospect of a positive China deal hanging as a carrot in front of them. It’s possible.

But there are major hurdles and risks ahead.

For one Brexit deal approval has run into major roadblocks in the UK and European markets clearly want a resolution on December 11. OPEC is meeting on December 6th and oil markets remain in a major funk.

Then there remains event risk as it pertains to the President himself. His former campaign manager, his former attorney and his former National Security Advisor are all in major legal trouble. Manafort is in jail already, Cohen just plead guilty to lying about Trump’s business interests in Russia and Flynn is expected to come clean on Tuesday in his plea. The president’s twitter feed has been pre-occupied about the Mueller investigation in recent days. Things continue to brew there and pose headline risk.

Tuesday of course is December 4th and seasonality suggests that the first two weeks of December can be shaky.

Example:

After all a larger gap up into early this week may bring about short term overbought readings. Tax loss selling is a consideration as well as are multiple points of resistance and open gaps ahead.

Lest not forget there is technical damage on the charts and prices would run into major resistance ahead:

And charts like this open the possibility that this current bear trap may turn into a bull trap eventually:

After all liquidity is still being drained from the system, growth is still slowing, no definite China deal has been accomplished and earnings comparisons will still lag in 2019.

Hence the Fed’s efforts last week may ultimately turn out to be ineffective and only delay the perhaps inevitable: That these trend lines will eventually break for good to the downside.

Is the risk zone we outlined still applicable in 2018?

With higher lows in place and only 4 trading weeks left in the year it seems highly unlikely frankly, but not without precedence.

The very last year when markets made a new yearly low in December? All the way back in 2000:

That year too had a double top with weakness into October and November and the late November/early December rally fizzled into new lows. Back then that turned into a 2 day affair before a major rally into January which also produced lower highs before the recession unfolded.

That’s one year out of the past 19. Not exactly an encouraging historical precedent for bears.

It’s true that the $WLSH chart still shows strong resemblance to 2007:

But to prove their case bears need lower lows. And so far they have failed miserably.

Outlook: Last week’s massive rally and indicated further strength have so far supported the Bear Trap scenario. We’ll be reaching short term overbought readings into early December just ahead of traditional short term weaker seasonality. There likely will be some fade/retest trade opportunities. Indeed bulls need to avert a sell the news scenario. A renewed drop below 2700 would constitute a major warning sign for bulls. A drop below the October/November lows would fully open up the lower risk zone again.

Headline risk and technical resistance remain part of the market’s make-up. But bulls have been given a license to rally these markets into year end.

They better not fumble this or this setup turns into a bull trap fast.

[ZH: For now, in spread markets, The Dow is up around 225 points from Friday’s close – so not entirely enthusiastic]

Source: IG

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Russian President Vladimir Putin says it’s “too early” to release Ukrainian sailors and naval vessels seized in the Sea of Azov, and has accused the government of Ukraine of provoking an incident to distract from their own domestic problems. 

In statements to reporters following the G-20 summit in Buenos Aires, Putin covered a wide array of topics, including oil production and a possible detente with the UK in the hopes that the nations can overcome differences and normalize relations. 

On the topic of Ukraine, however, Putin took a harder stance over Moscow’s refusal to release the 24 captured sailors – an international incident which resulted in US President Trump canceling a meeting with Putin amid the uproar (the two instead had a brief side-chat).

Russia detained the two artillery ships and a tugboat after forcing them to stop at gunpoint after what Moscow described as “dangerous maneuvering” in the waters near the Kerch Strait. 

Putin said that it was necessary to hold the sailors captive while a legal case was constructed that would show that the three Ukrainian naval vessels were in violation of Russian territorial waters – and that the ship’s logs would reveal their attempt to cross the Kerch strait from the Black Sea into the Sea of Azov, which is enclosed by Russia, the Crimean peninsula and mainland Ukraine. 

When asked if the Kremlin might be willing to exchange the sailors for Russians detained by Ukraine, Putin replied: “We are not considering a swap and Ukraine did not raise this issue, and it’s too early to talk about that. They are still being investigated. We need to establish the fact that this was a provocation by the Ukrainian government and we need to put all these things on paper.” 

Putin also suggested that the incident was part of a wider pattern of provocation by Kiev. 

“The current Ukrainian leadership is not interested in resolving this at all,” said the Russian leader. “As long as they stay in power, war will continue. Why? Because when you have provocations, such hostilities like what just happened in the Black Sea … you can always use war to justify your economic failures.” 

Last week, Russia’s FSB security service released a video of three men admitting they provoked the incident  with Russia. 

One of the crew members, who is identified by Russian media as Andrey Drach, an agent with the Main Directorate of Military Counterintelligence of Ukraine’s Security Service, said Russia’s Coast Guard repeatedly warned the Ukrainian ships against entering Russian water.

“On the way to Mariupol through the Kerch Strait we reached the territorial waters of the Russian Federation where the Border Service of the Russian Federation warned us that that we violated the legislation of the Russian Federation. They told us repeatedly to leave the territorial waters of the Russian Federation.”

A second sailor confirmed Drach’s statement. He was identified as Sergey Tsybizov, a sailor aboard the navy ship Nikopol:

“We sailed further on ‘Nikopol’ and Russian vessels contacted us and requested us to stop and reverse.”

And in a third released by the FSB, a man identified as Vladimir Lesovoy, a captain of the third rank, said that the sailors were aware that their actions were “provocative in nature.” Ukraine has since declared martial law as tensions continue to escalate between the two nations. 

Putin gave conflicting accounts of the Kerch incident. He first alleged that the Ukrainian boats, two small gunboats and a tugboat, had been trying to cross the strait in secret, when they clashed with the Russian coastguard.

The Ukrainian tugboat was rammed by Russian vessels, and one of the gunboats was fired on, sustaining damage in the hull and the bridge. Moscow said the clash took place inside Russia’s territorial waters, which extend 12 miles (20km) from the coastline, which Ukraine denies. Kiev says its vessels notified the Russian maritime authorities of their intention of going through the strait and that the Russians opened fire on its vessels after they had turned around and were heading away from the strait into the open wars of the Black Sea.

In his remarks in Buenos Aires, Putin appeared to confirm some of Kiev’s claims, conceding that the Ukrainian and Russian vessels had been in contact with each other before the incident, and that the Ukrainians had refused to use a Russian pilot to help them navigate the narrow strait. The Ukrainians reject Russian insistence that they use a Russian pilot, saying it is not required by a 2003 agreement on sharing the waterway, and is a recently imposed means of controlling Ukrainian access. –Guardian

Putin, meanwhile, said that the Russian coast guard “told them to stop and they did not respond.” 

“They started running away, so that’s it,” he said. “The border guards acted in accordance with the orders they were given. Any border guards of any country would do that if their border was violated.”

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