Month: March 2014

Since Ukraine is the only wildcard variable in the news these past few days, it was to be expected that following i) the end of the large Russian military drill begun two weeks ago and ii) a press conference by Putin in which he toned down the war rhetoric, even if he did not actually say anything indicating Russia will difuse the tension, futures have soared and have retraced all their losses from yesterday. And not only in the US – European equity indices gapped higher at the open this morning in reaction to reports that Russian President Putin has ordered troops engaged in military exercises to return to their bases. Consequent broad based reduction in risk premia built up over the past few sessions meant that in spite of looming risk events (ECB, BoE policy meetings and NFP release this Friday), Bund also failed to close the opening gap lower. At the same time, USD/JPY and EUR/CHF benefited as the recent flight to quality sentiment was reversed, with energy and precious metal prices also coming off overnight highs.

Despite the apparent reversal in sentiment, stocks were led higher by health care and industrial names, indicating a degree of caution and unwillingness to pare risk premia even further. In terms of macroeconomic data releases this morning, EUR/GBP reversed early losses following the release of lower than expected UK Construction PMI data, while the release of the latest Eurozone PPI data which showed largest Y/Y fall since December 2009 underpinned potential need to ease by the ECB.

Going forward, market participants will get to digest the release of the latest ISM New York report, API oil inventories after the closing bell on Wall Street and the commencement of China’s National People’s Congress meeting.

Bulletin news summary from Bloomberg and RanSquawk

• Treasuries fall, led by 5Y and 7Y; 10Y notes surrender all of yesterday’s flight-to-quality gains as Putin says in press conference there’s no immediate need to send troops to Ukraine
• Putin accused protestors of overthrowing Yanukovych in illegal coup and that the deposed president had asked for military protection of ethnic Russians
• Putin also ordered soldiers in western Russia to return to their bases by the end of the week after military exercises ended on schedule
• China’s money-market rate jumped the most in six weeks, rebounding from a nine-month low, as the central bank withdrew excess cash from the financial system
• Citigroup and JPMorgan are bracing investors for a fourth straight drop in 1Q trading, a period of the year when the largest investment banks typically earn the most from that business
• Sovereign yields higher. EU peripheral spreads narrow as bund yields rise from 7-month low. Asian equities mostly higher; Shanghai Composite -0.2%. European equity markets, U.S. stock-index futures gain. WTI crude and gold fall; copper higher

US Event Calendar

• 9:45am: ISM New York, Feb. (prior 64.4)
• 10:00am: IBD/TIPP Economic Optimism, March, est. 45.3 (prior 44.9)
• 11:00am: POMO – Fed to purchase $1b-$1.25b notes in 2036-2044 sector

Ukraine Update

Russian President Putin says no need to send troops to Ukraine yet, military exercise had been planned long ago; use of force in Ukraine is a choice of last resort.

Russian President Putin says we reserve the right to use all legitimate means to protect residents of Eastern Ukraine.

Russia is not considering the annexation of Crimea, says President Putin.

Asian Headlines

JGBs finished the session little changed, with super-longs outperforming on touted dip buying. At the same time, in spite of Shanghai Comp trading lower following liquidity draining op, the Nikkei 225 index managed to settle in positive territory and was supported by a weaker JPY, with USD/JPY and EUR/JPY remaining bid this morning.

The PBoC drained CNY 35bln via 14-day repos and CNY 50bln via 28-repos. (BBG)

EU & UK Headlines

Eurozone PPI (Jan) M/M -0.3% vs Exp. -0.1% (Prev. +0.2%)
Eurozone PPI (Jan) Y/Y -1.4% vs Exp. -1.3% (Prev. -0.8%) – largest fall since December 2009.
UK PMI Construction (Feb) M/M 62.6 vs. Exp. 63.2 (Prev. 64.6) – rains and floods hit home-building, according to Markit.

There will be unanimous agreement on ending the sterilization of bond purchases under the Securities Market Programme (SMP), according to predictions from an ECB source. (DAWN.COM) This comes ahead of this Thursday’s ECB rate decision, where analysts remain split on whether the ECB will act to stem deflation risk.

US Headlines

The White House on Monday night touted middle-class tax breaks it is including in its 2015 budget proposal set for release on Tuesday. The expanded tax breaks were mostly called for in President Obama’s State of the Union address last month, in which the president stressed combating income inequality as a top goal. (TheHill.com)

Equities

Oil & gas related stocks underperformed this morning after reports of an end to war games in Crimea prompted an aggressive slide in energy prices. At the same time, with gold trading lower by over USD 10.00 meant that the heavily correlated Fresnillo also traded with losses close to 10%.

FX

Lower precious metal prices failed to weigh on commodity linked AUD/USD, which remained bid, albeit marginally, as the overriding risk on theme supported flows into higher yielding assets. Elsewhere, it was reported this morning citing an advisor to Putin, Glazyev, saying that Russia can dodge any proposed US sanctions by switching to other currencies and creating its own payment system. However, Kremlin official later clarified that Glazyev’s comment on USD do not reflect official position.

Reserve Bank of Australia Cash Rate Target (March 4) 2.50% vs. Exp. 2.50% (Prev 2.50%)

The RBA repeated it sees likely period of interest-rate stability and that monetary policy remains accommodative.

The RBA also commented that the exchange rate remains high by historical standards, adding that resource investment is to decline significantly and that non-mining improvement is only tentative. (BBG)

Commodities

Heading into the North American open WTI crude futures trade lower following the news released this morning indicating that any imminent military conflict in Ukraine has lessened following reports of the conclusion of Russian military exercises, with Putin also stating that there is no need to send troops to Ukraine yet.

Sanctions on Russian oil would be infeasible and ineffective, according to Morgan Stanley, as Russia is integral to the global oil market, representing 13% of global crude production. (BBG)

Gazprom is set to cancel gas discounts to Ukraine, starting in early April. (Interfax)

BNP Paribas has upped its 2014 NatGas price estimate to USD 4.90/mmbtu, up from USD 4.60/mmbtu, as production gains are expected to fall short of exuberant market expectations. (BBG)

Saudi Arabia looks set to produce up to 11mln bpd in Q3 with Saudi oil output gain to gut global spare capacity to near zero, according to Energy Aspect. (BBG)

 

* * *

We conclude with the traditional Jim Reid (DB) overnight event recap

The Crimean standoff remains the focus for markets, and after the flurry of events yesterday, developments appear to have slowed down in the last 12 hours or so but it’s still too early to say whether we’ve reached a temporary stalemate. As we type this morning, Reuters is reporting that Putin has ordered troops engaged in military exercises to return to their bases, although its not clear if that refers to troops in Crimea or in Russian territory. As we await the next move by the protagonists, attention is turning to Putin’s motivations for seizing control of the Crimean peninsula over the weekend. Opinions are split on whether Putin is looking for leverage in the formation of a new Ukrainian government, or looking to seize the Crimean region as a precursor to potentially reconstructing Ukraine’s eastern border (DB thinks that the latter is unlikely). Others including the FT’s Peter Spiegel think that after last week’s exit of the Russian-backed Ukrainian President Yanukovich and reported threats to Russian interests, the focus is on finding a face-saving Ukraine exit for Vladimir Putin. One way of doing so would be through the EU potentially offering international monitors for Crimea, which could meet the Russian president’s public demand that the peninsula’s Russian-speaking majority is protected. Indeed, Russia’s envoy to the UN argued that the ousted Ukrainian president had asked Putin to use military force in Crimea to restore law and order.

Late Monday, the US government said it was suspending all trade and investment talks with Russia as well as all “military-to-military” engagements. So far there have not been wider military reactions from the West. The US confirmed that there was no change in US ship movements in the Black Sea region. The USS Mount Whitney, a command ship sent into the Black Sea to assist with security surrounding the Sochi Olympics, was due to return to its home port in Italy on either Monday or Tuesday (FT).

In terms of the economic impact on Russia, this will in some part depend on sanctions. On this the international community appears split, with the US seemingly more interested in imposing economic restrictions, while its EU allies are less inclined to do the same. We’ll hear more about this today when US Secretary of State John Kerry meets with officials in Kiev. Our EM strategists think that there are significant doubts about whether the West could agree on meaningful economic sanctions, not least given Europe’s reliance on Russian energy (it still imports almost 30% of its natural gas from Russia, about half of which is shipped through Ukraine). However, the CBR’s rate hike yesterday will have a negative consequence via a squeeze in the domestic liquidity conditions which will be problematic for the banks and an already weak economy. Even without sanctions, a more isolated Russia will likely compound already low investment levels and a diminished growth outlook on long-standing lack of reforms (both economic and institutional). On the whole, our EM strategists believe that there is further upside pressure to Russian CDS spreads. In terms of the Ukraine, the focus remains very much on the potential for near-term aid. According to the FT, the IMF could tap its recently-created “rapid financing instrument”, which would allow it to loan Kiev $1bn without the detailed negotiations needed for a full-scale aid programme. The European Commission has proposed adding €1bn of its own money to the IMF’s loan. Our EM strategists think that the market has not yet priced in a pessimistic scenario of a Ukrainian sovereign default and there is likely further downside to bond prices in their view.

Turning to overnight markets, sentiment is certainly firmer compared to yesterday with small gains seen on the Nikkei (+0.3%) and Hang Seng (+0.4%) on the back of lower risk aversion. In keeping with this theme, gold (-0.01%) has given up some of its 1.8% gain on Monday and US treasury yields (+1bp) have edged off YTD lows. S&P500 futures are up 4.5pts or 0.25% as we type. A number of EM bourses continue to lag though, including the KOSPI (-0.37%), HSCEI (-0.11%) and Jakarta Composite (-0.3%) partially catching up to what was a very weak day for EM assets yesterday. Chinese stocks (-1.0%) are leading the region’s losses ahead of the National People’s Congress. In Asian fixed income, the 5bp rally in UST yields on Monday is boosting demand for Asian credit. A number of high beta EM sovereign credits are 3-4bp tighter as investors see them being relatively isolated from the issues of their Eastern European counterparts. The AUDUSD is 0.1% lower this morning after the Reserve Bank of Australia said that it will be keeping rates on hold for a “period” and reiterated its reference to the AUD’s strength.

Coming back to yesterday, in Western Europe markets spent much of the day combing through the financial sector looking for banks which had the highest exposure to Russia and the Ukraine. Judging by stock price moves, Raiffeisen (- 9.6%), Unicredit (-6.2%), ING (-5.6%) and Soc Gen (-5.5%) came under the most scrutiny, leading European financials (-2.7%) lower as the worst performing sector in the Stoxx600 (-2.27%). A number of banks scrambled to release press statements yesterday quantifying their exposure to the two countries in question. ING Bank disclosed that it has EUR8.5bn in commercial bank loan exposure in Russia and Ukraine and Socgen generated some worries as the foreign bank with largest bank network in Russia (Bloomberg), but it said that its Ukranian exposure was negligible. Raiffeisen as the owner of the biggest foreign lender in Ukraine was forced to suspend the sale of its Ukraine unit. Unicredit said that it has temporarily closed some branches in the Crimean region and said that it will limit ATM cash withdrawals from Ukraine to a maximum of UAH1500 per 24 hours (equivalent to around US$150). The European senior financials credit index (+6.125bp) underperformed the broader European main index (+4.125bp).

Across the Atlantic, the S&P 500 (-0.74%) rebounded off the intraday lows after the Russian military downplayed talk of an ultimatum to Ukrainian forces in the Crimea (the ultimatum passed this morning without major incident). Financials (- 0.93%) also were the worst performing sector in the US and investors shrugged off the better data flow with Ukraine headlines driving market direction. Though it was largely ignored, yesterday’s data flow gave some hope that US is finally emerging from its weather-induced slowdown – but you could be forgiven for thinking the opposite if you were in Washington DC area where yet another heavy snow storm hit accompanied by extremely low temperatures on Monday evening. Nevertheless, looking at the Bloomberg US Economic Surprise index, negative surprises bottomed at a two-year low in late February and have been rising since.

January US personal income (0.3% vs 0.2% expected) and personal spending (+0.4% vs 0.1%) were both above consensus though there were downward revisions to December spending numbers. The ISM manufacturing (53.2 vs 52.3 expected) also beat estimates, rebounding in February following a sharp fall in January. The ISM result was driven by gains in new orders (54.5 vs. 51.2) and inventories (52.5 vs. 44.0). Brent and WTI closed 2% higher apiece on talk of supply disruptions but NYMEX natural gas fell 2.5% as expectations that the worst of the cold weather conditions have passed. The government bond complex across the Core was well bid, perhaps supported by Draghi’s comments to the European Parliament where he warned that the longer that inflation stays at the current level, the greater the risk that it won’t go back to 2% in a reasonable time period. Towards the end of the US session, Citigroup’s CFO warned that the bank faces a weak 1st quarter with trading revenues down in the high mid-teens year-on- year. This is a consistent message to JPM’s comments last week suggesting that markets revenues would be down 15% yoy this quarter.

Looking at the day ahead, we have a relatively quiet day ahead in terms of data releases but there will no doubt be plenty of attention paid to the developments in the Crimean region. On Capitol Hill, the Senate Banking Committee has postponed a confirmation hearing for the nominations of Stanley Fischer, Jerome Powell and Lael Brainard to the Fed Board of Governors. The postponement was because of government office closures on Monday as a result of snow storms. A new date has not been set for the confirmation hearing, according to a statement from the banking committee.

via Zero Hedge http://ift.tt/1q08m7G Tyler Durden

Futures are soaring and are just shy of their record high following a just completed press conference by Vladimir Putin in his residence outside of Moscow, in which the Russian leader appears to have softened his stance on Crimean aggression, saying he does not consider adding Crimea to its territory. What the market is focusing on is the repeat of Putin’s stance that he will not be sending troops to the Crimea yet (even though they are there already), and that he suddenly appears concerned about the impact on markets and the fallout from sanctions.

The key highlights from the speech from Blooomberg.

• PUTIN SAYS UKRAINE SUFFERED COUP
• PUTIN SAYS UKRAINE GOVT OVERTHROW UNCONSTITUTIONAL, ARMED COUP
• PUTIN SAYS YANUKOVICH AGREED WITH OPPOSITION TO SURRENDER POWER
• PUTIN SAYS UKRAINE’S YANUKOVYCH DIDN’T GIVE ILLEGAL ORDER TO SHOOT
• PUTIN SAYS UKRAINE USED TO ONE SET OF CROOKS REPLACING ANOTHER
• PUTIN SAYS YANUKOVYCH IS UKRAINE’S LEGITIMATE PRESIDENT
• PUTIN SAYS YANUKOVYCH ASKED RUSSIA TO SEND TROOPS TO PROTECT PEOPLE
• PUTIN SAYS YANUKOVYCH HAS NO POLITICAL FUTURE
• PUTIN SAYS UKRAINE POLITICAL LIFE HAS BECOME FARCE
• PUTIN SAYS NO NEED TO SEND TROOPS TO UKRAINE YET
• PUTIN SAYS RUSSIA’S MILITARY EXERCISE HAD BEEN PLANNED LONG AGO
• PUTIN SAYS RUSSIA WOULD SEND TROOPS TO UKRAINE ONLY IN EXTREME CASE
• PUTIN SAYS NO BLOODSHED IN CRIMEA
• PUTIN SAYS RUSSIA TROOPS IN UKRAINE’S CRIMEA JUST REINFORCEMENT
• PUTIN SAYS MARKETS REACTED NERVOUSLY TO EVENTS DUE TO U.S. POLICY
• PUTIN SAYS POLITICS HAD “TACTICAL”, TEMPORARY IMPACT ON MKTS
• PUTIN SAYS SANCTIONS AGAINST RUSSIA WOULD CAUSE MUTUAL DAMAGE
• PUTIN SAYS CRIMEAN ADMINISTRATION IS FULLY LEGITIMATE
• PUTIN SAYS RUSSIA NOT CONSIDERING ADDING CRIMEA TO RUSSIA
• PUTIN SAYS CRIMEA SELF-DEFENSE BLOCKED UKRAINE FORCES
• PUTIN SAYS WE DON’T PLAN TO FIGHT UKRAINIAN PEOPLE
• PUTIN SAYS DOESN’T WANT TO RECALL AMBASSADOR FROM U.S.
• PUTIN ORDERED RUSSIAN GOVT TO RENEW CONTACTS WITH UKRAINE GOVT
• PUTIN SAYS WEST ASKED RUSSIA NOT TO BUY MORE UKRAINE BONDS
• PUTIN SAYS NO IDEA WHO UKRAINE WILL ELECT AS PRESIDENT
• PUTIN SAYS AGREES W/ UKRAINE PROTESTERS’ DEMAND FOR NEW LEADERS
• PUTIN SAYS MET YANUKOVYCH 2 DAYS AGO, SAYS HE’S ALIVE

On the oh so sensitive topic of Russian gas:

• PUTIN SAYS UKRAINE MAY OWE $2B FOR GAS AT END FEB.
• PUTIN SAYS GAZPROM CANCELLING UKRAINE GAS DISCOUNT OVER DEBT

Then

• RUSSIA’S LAVROV SAYS HOPES “OUR PARTNERS” WILL NOT IMPOSE SANCTIONS OVER UKRAINE AND WILL UNDERSTAND RUSSIAN POSITION
• RUSSIA’S LAVROV SAYS OUR MOVE IN CRIMEA WAS CORRECT, FORCES SEIZED ARMS AND EXPLOSIVES

So is this Putin offering an olive branch to the West and de-escalating Crimea, or just more smoke and mirrors for the media to consume even as Putin fully entrenches in the territory? Expect to find out shortly.

Finally, here is Reuters recap of events:

President Vladimir Putin said on Tuesday that Russia saw no need to use military force in the Crimea region of Ukraine for now, in remarks apparently intended to ease East-West tension over fears of war in the former Soviet republic.

 

The use of force by Russia in Ukraine would be a choice of last resort, Putin said, and sanctions being considered against Moscow by the West would be counter-productive.

 

Putin told a news conference at his state residence outside Moscow there had been an “unconstitutional coup” in Ukraine and ousted leader Viktor Yanukovich, an ally of Russia, was still the legitimate leader of the country despite giving up all power.

 

Earlier on Tuesday, Putin ordered troops involved in a military exercise in western Russia, close to the border with Ukraine, back to their bases.

 

Russian financial markets rebounded after sharp falls on Monday, and the euro and dollar rose in Japan, though Moscow’s forces remained in control of Ukraine’s Crimea region, seized bloodlessly after Yanukovich was ousted last month.

 

Russia paid a heavy financial price on Monday for its military intervention in Ukraine, with stocks, bonds and the rouble plunging as Putin’s forces tightened their grip in Crimea, whose population is mainly ethnic Russian.

 

The Moscow stock market fell more than 10 percent on Monday, wiping nearly $60 billion off the value of Russian firms, but Russian stock indexes rose more than 4 percent early on Tuesday before slipping back again slightly, though still up on the day.

 

Putin said the turmoil in Russian markets was a “tactical, temporary” decision by investors.

 

U.S. Secretary of State John Kerry will propose ways for a negotiation between Russia and Ukraine to be overseen by a multilateral organisation when he visits Kiev on Tuesday.

 

NATO allies will hold emergency talks on the crisis on Tuesday, for the second time in three days.

 

GAZPROM PRICES

 

In further pressure on Kiev, Russia’s top gas producer Gazprom said it would remove a discount on gas prices for Ukraine from April, Interfax news agency cited the company’s chief as saying on Tuesday.

 

However, Gazprom chief Alexei Miller also said the company could offer Ukraine a loan of $2-3 billion to pay off the country’s debt of more than $1.5 billion after Ukraine said it was unable to pay in full for gas deliveries in February, Interfax news agency said.

 

Putin said at the weekend that he had the right to invade Ukraine to protect Russian interests and citizens after Yanukovich’s downfall following months of popular unrest. Russia’s Black Sea Fleet has a base in Crimea.

 

But the military exercises in central and western Russia, which began last week and raised fears that Russia might send forces to Russian-speaking regions of east Ukraine, were completed on schedule.

 

“The supreme commander of the armed forces of the Russian Federation, Vladimir Putin, gave the order for the troops and units, taking part in the military exercises, to return to their bases,” Kremlin spokesman Dmitry Peskov was quoted as saying by Russian news agencies.

 

Although the end of the exercises had been planned, the announcement sent a more conciliatory message than much of the rhetoric from Russian officials, who say Moscow must defend national interests and those of compatriots in Ukraine.

 

Putin is dismayed that the new leadership in Ukraine, the cradle of Russian civilisation, has plotted a course towards the European Union and away from what had been Moscow’s sphere of influence during generations of Soviet Communist rule.

 

Moscow’s U.N. envoy told a stormy meeting of the Security Council that Yanukovich had sent a letter to Putin requesting he use Russia’s military to restore law and order in Ukraine.

 

Ukraine said observers from the Organization for Security and Cooperation in Europe, a pan-European security body, would travel at its invitation to Crimea in an attempt to defuse the military standoff there.

via Zero Hedge http://ift.tt/1i2LaQM Tyler Durden

We had previously warned that Putin's "trump card" had yet to be played and with Obama (and a quickly dropping list of allies) preparing economic sanctions (given their limited escalation options otherwise), it was only a matter of time before the pressure was once again applied from the Russian side. As ITAR-TASS reports, Russia's Gazprom warned that not only could it cancel its "supply discount" as Ukraine's overdue payments reached $1.5 billion but that "simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe." And with that one sentence, Europe will awaken to grave concerns over Russia's next steps should sanctions be applied.

 

It would appear this is the most important map in Europe once again…

 

 

Some recent history…

In late January, Ukraine asked Russia for deferral of payments for gas supplied in 2013 and in early 2014. President Vladimir Putin said Ukraine’s debt totalled $2.7 billion then.

and then…

On March 1, Gazprom’s spokesperson Sergai Kupriyanov said the gas holding could cancel its gas supply discount for Ukraine as its overdue debt for gas reached $1.5 billion. This figure includes debts not only for last year’s supplies, but also for the current deliveries.

 

"The situation with payments is worrying," said Andrei Kruglov, Gazprom's chief financial officer.

"Ukraine is paying but not as well as we would like it to. We are still thinking about whether to extend the pricing contract into the next quarter based on current prices."

And now today…

Russia’s gas giant Gazprom said on Monday it did not rule out possible disruptions of gas supplies to Europe over Ukraine’s political situation.

 

“Simmering political tensions in Ukraine, that are aggravated by inadequate economic conditions, may cause disruptions of gas supplies to Europe,” the monopoly said in its materials, adding that it would do its utmost to reduce export risks.

 

“We will further invest into other export-oriented projects such as South Stream and will enhance our LNG (liquefied natural gas) production and export capacity. We also increase our access to underground gas storage facilities in Europe.”

 

Andrei Kruglov, Gazprom’s chief financial officer, said at the moment Russia had been supplying gas to Ukraine according to schedule, although the latter failed to fulfil its debt obligations.

With that last sentence providing exactly the 'real world' cover Gazprom needs to cut its supplies "through" Ukraine and thus to Europe…

And, as The Guardian notes, this would…

not the first time Russia has used gas exports to put pressure on its neighbour – and "gas wars" between the two countries tend to be felt far beyond their borders. Russia, after all, still supplies around 30% of Europe's gas.

 

In late 2005, Gazprom said it planned to hike the price it charged Ukraine for natural gas from $50 per 1,000 cubic metres, to $230. The company, so important to Russia that it used to be a ministry and was once headed by the former president (and current prime minister) Dmitry Medvedev, said it simply wanted a fair market price; the move had nothing to do with Ukraine's increasingly strong ties with the European Union and Nato. Kiev, unsurprisingly, said it would not pay, and on 1 January 2006 – the two countries having spectacularly failed to reach an agreement – Gazprom turned off the taps.

 

The impact was immediate – and not just in Ukraine. The country is crossed by a network of Soviet-era pipelines that carry Russian natural gas to many European Union member states and beyond; more than a quarter of the EU's total gas needs were met by Russian gas, and some 80% of it came via Ukrainian pipelines. Austria, France, Germany, Hungary, Italy and Poland soon reported gas pressure in their own pipelines was down by as much as 30%.

Short of an actual war, the consensus appeared to be, Europe's gas supplies are unlikely to be seriously threatened (since Putin relies on those revenues)… that is clearly about to change with Gazprom's comments.

via Zero Hedge http://ift.tt/1djEsG6 Tyler Durden

Submitted by Baktybek Beshimov and Ryskeldi Satke via The Diplomat,

Kyrgyzstan was once known for its Tulip Revolution, a name the followed the trend of color-coded revolutions in Georgia and Ukraine. The ouster of the corrupt regime of President Askar Akayev in 2005 gave those Kyrgyz aspiring for a better future cause for hope, but expectations were quickly dampened. Akayev’s successor Kurmanbek Bakiyev suffered the same fate, with his removal from office in 2010.

The Kyrgyz Republic subsequently became the first ever parliamentarian state in Central Asia, normally a bastion of post-Soviet dictatorships. In this part of the world, presidents and their loyalists control politics, along with economic and financial assets. For Kyrgyzstan, the hope was that following two failed regimes in a decade, this novel rule by parliament and the peaceful transfer of power would break the ice of autocracy in Central Asia. Certainly the new leader of the republic—first as prime minister and then as fourth president—Almazbek Atambayev has spared no effort to convey his commitment to democracy.

Yet, like his predecessors, Atambayev has sought to extend his political power, strengthening control over lucrative businesses and persecuting his opponents. Overcoming the old authoritarian traditions has proven challenging. Today, factional infighting for power among the provincial clans and political regionalism continue to set the agenda for this small nation.

Mayoral elections in two major cities in Kyrgyzstan on January 15 have intensified the political divisions in the provinces, with evident hostility from the South toward the central authorities in Bishkek. Atambayev’s protégé stood as the only candidate for mayor of Kyrgyzstan’s capital Bishkek. Suspect elections in the southern city of Osh, where incumbent Melis Myrzakmatov lost despite being the strong frontrunner, only reignited brewing anger at a president who was widely believed to have been involved in hijacking the popular vote. Myrzakmatov’s supporters took to the streets of the city the same day to condemn the outcome. According to local reports, up to ten thousand people attended a demonstration in Osh on January 15. The ousted mayor called for restraint at the protest, urging his electorate base to prepare to use civil disobedience to protest the government. In a country known for electoral fraud, the elections have kicked off another round of political confrontation between the clans. Kyrgyz political factions often mobilize ordinary citizens to undermine government, in what Scott Radnitz called “weapons of the wealthy.”

Indeed, the North-South political divide has only widened in the years since the overthrow of the Bakiyev regime. The fractured nature of the Kyrgyz political field was one of the subjects of Atambayev’s speech in December 2011, when the Kyrgyz leader pledged to bridge the differences. Yet the dubious outcome of the Osh elections suggested he has made little progress on that front.

Protests in Kyrgyzstan are commonplace, with 782 in 2013 alone, a staggering number for a tiny republic. But the most volatile part of the country remains the South, where large-scale ethnic conflict exploded in the summer of 2010. In contrast to the North, the poverty-stricken provinces of Osh, Jalal-Abad and Batken are highly dependent on the cross-border trade with neighboring Uzbekistan and Tajikistan. One of the biggest markets in Central Asia is the Kara-Suu bazaar located near the city of Osh, in the Ferghana Valley. According to an OSCE report from 2011, trade between these southern provinces and neighboring states including China plays a major role in the social and economic development of the volatile Ferghana Valley region. Nonetheless, Kyrgyz Ministry of Labor, Migration and Youth statistics for 2012 show that unemployment in Kyrgyzstan is highest in the South. The central authorities in Bishkek and Atambayev have played little role in the politics or social development of the region, where disregard for central government is widespread.

Nevertheless, it would be inaccurate to blame the country’s struggles entirely on old Kyrgyz political traditions. The current political chaos is also an outcome of the Kyrgyz leadership’s policies. Atambayev is the most pro-Kremlin figure among Central Asia’s leaders today. At his personal initiative, Russia has monopolized the Kyrgyz Republic’s energy, defense and transportation industries. The entire national gas supply system (admittedly debt burdened) was sold to Russia’s giant Gazprom for $1 dollar. RusHydro took the lion’s share of the Kyrgyz hydro energy company, and Rosneft is in the process of acquiring more than fifty percent of Manas International Airport, which had been leased by the U.S. and NATO member states after 9/11. Atambayev took a step further when he extended the Russian military airbase presence, hoping to rearm Kyrgyzstan’s military with the help of Russian President Vladimir Putin. This appeared to be more an act of despair than a carefully defined strategy. Consequently, Kyrgyzstan failed to reform its judiciary system, where anti-corruption campaigns mired in constant controversy add to government dysfunction. The Kyrgyz Republic’s desperate economy has low export capacity, lacks foreign investment and depends on remittances from migrant labor working in Russia. With bleak economic prospects, Atambayev has accelerated Kyrgyzstan’s shift towards Russia to secure his own political future. This has left him walking a fine line between the sovereign interests of Kyrgyzstan and the neo-imperial policy of the Kremlin.

Ultimately,  the Kyrgyz Republic’s transformation into a Russian client state and military bulwark is bad news for Uzbekistan and Kazakhstan. Not surprisingly, Kazakh leader Nursultan Nazarbayev has openly expressed his opposition to Kyrgyzstan’s joining the Customs Union, with its special privileges and concessions. The Uzbek president added that the unequal distribution of the water resources of Central Asia could spark conflict, specifically over Russian joint hydro energy projects planned in upstream states, Kyrgyzstan and Tajikistan.

Naturally, all these external grudges have engendered domestic discontent. What has taken place in the Ukraine may perhaps embolden factions of the Kyrgyz opposition to move against Atambayev and what they see as his excessively pro-Russia policy. However, given Moscow’s extensive historical influence in Kyrgyzstan and the large presence of Kyrgyz laborers in Russia, support for a shift away from Russia does not seem widespread. More likely, the next regime change in Kyrgyzstan will be the result of a factional split and regional divisions.

via Zero Hedge http://ift.tt/1kthIIh Tyler Durden

With Executive Orders flying willy-nilly, a monstrous surveillance nation, and standing on the verge of another Cold War, we thought a quick refresher on how (exactly) the separation of powers is ‘supposed’ to work would be useful…

 

via Zero Hedge http://ift.tt/1olQtg9 Tyler Durden

Having ripped higher by over 200 points after the US close, Nikkei 225 futures have “glicthed”:

• *JPX SAYS NIKKEI 225 FUTURES STOPPED TRADING AFTER 11AM TOKYO
• *JAPAN EXCHANGE SAYS NIKKEI 225 FUTURES STOPPED ON SYSTEM ERROR
• *TRADING HALT MAY BE DUE TO SYSTEM PROBLEMS, TAKAHASHI SAYS

The ramp, which caught futures up to USDJPY happened as they recoupled… we will see which direction the post-break market wants to go…

 

via Zero Hedge http://ift.tt/1n4yuMk Tyler Durden

While it has gotten to the point where the propaganda is so bad on both sides of the Ukraine crisis, that any numbers thrown about are ridiculous, made up gibberish more fabricated than anything the Chinese Department of Truth or US Bureau of Labor can possibly goalseek, it is worth pointing out that according to AP, Ukraine’s ambassador to the UN said 16,000 Russian troops are now deployed in the Ukraine. This was “revealed” at the third emergency Security Council session meeting in the last four days, shortly after Ukraine’s fugitive president requested Russian soldiers in the strategic Crimea region “to establish legitimacy, peace, law and order,” Russia’s U.N. ambassador said Monday, contradicting the president’s own comments last week.

However, while Russian hypocrisy is to be expected – after all they are the “Evil Empire” to quote a famous actor and president – it is the humor from the self-appointed moral watchdog of all the world’s evils, the US, that was the highlight of today’s UN session:

 U.S. Ambassador Samantha Power dismissed Moscow’s contention that it intervened militarily in Crimea to protect the human rights of Russian civilians there as “baseless,” insisting there is no evidence of any threats against ethnic Russians in Ukraine.

 

“One might think that Moscow has just become the rapid response arm of the High Commissioner for Human Rights,” she told the council. “Russian military action is not a human rights protection mission.”

Speaking of high commissioners for human rights, at least Russia never invaded a country using made up WMDs as pretext, and did not almost launch World War III to satisfy a nat gas-rich ally over a fabricated YouTube clip. Oh, and all that “innocent civilian casualty” drone stuff too.

So what does the world’s most irrelevant organization do? They send in monitors:

• OSCE MONITORS TO BE DEPLOYED TO CRIMEA TONIGHT, POWER SAYS
• POWER CALLS ON RUSSIA TO ENSURE OSCE NOT BLOCKED IN CRIMEA
• CHURKIN SAYS RUSSIA SUPPORTS UN OFFICIAL’S VISIT TO UKRAINE
• CHURKIN DECLINES TO COMMENT IF RUSSIA SUPPORTS OSCE MISSION

Well, monitors did miracles during the Yugoslav war, maybe they will “work” this time too.

But the piece de resistance, regardless if the real number of Russian troops in the Ukraine is 1,000 or 100,000, was the following:

• DOD CALLS ON RUSSIAN FORCES IN CRIMEA TO RETURN TO THEIR BASES

Wait, so the US Department of Defense, that of the United States if it was somehow unclear, suddenly has authority to control the troops… of Russia?

One wonders: did the US Department of Education tell Gazprom to maintain gas supplies to Germany no matter how many CIA agents are operating in Kiev?

Or did ACORN tell whoever is the current pre-countercoup Ukraine president to hike minimum wages?

Or maybe the Department of Justice is quietly trying to collect its Fedex guns sent “erroneously” to Ukraine mercenaries, having confused them with Mexican drug lords?

Whatever the confusion, we are confident that following this latest “escalation” in the US response narrative, that Russia will promptly CTRL-Z everything it has done in the Ukraine in the past two weeks, and say it was only kidding.

***

Tangentially, while it has been made abundantly clear just how terrified Russia is of the US, of Europe and of NATO, for an indication of what China thinks of the latter, the WSJ reports the following:

The departing U.S. ambassador to China, Gary Locke inspired mixed reactions during his two-and-a-half-year tenure. Though his unpretentious manner was widely praised, as the first American of Chinese descent to hold the job, criticism of him had a special bite… The state-run China News Service… published a derisive editorial late last week (in Chinese) that described Mr. Locke as “a banana, with yellow skin and a white heart.”

Because when America respects itself and its symbolic headpiece, the president, so very much how can the rest of the world not follow?

via Zero Hedge http://ift.tt/1kQz8vF Tyler Durden

Authored by Charles Tannock, originally posted at Project Syndicate,

Russia’s seizure of Crimea is the most naked example of peacetime aggression that Europe has witnessed since Nazi Germany invaded the Sudetenland in 1938. It may be fashionable to belittle the “lessons of Munich,” when Neville Chamberlain and Édouard Daladier appeased Hitler, deferring to his claims on Czechoslovakia. But if the West acquiesces to Crimea’s annexation – the second time Russian President Vladimir Putin has stolen territory from a sovereign state, following Russia’s seizure of Georgia’s Abkhazia and South Ossetia regions in 2008 – today’s democratic leaders will surely regret their inaction.

In Western capitals, the response so far has been mixed. The punishments being considered – expulsion from the G-8, for example – would be laughable were the threat to Europe’s peace not so grave. Putin regards the breakup of the Soviet Union as the greatest catastrophe of modern times, and he has sought relentlessly to refashion Russia’s lost empire. If the West intends to be taken seriously, it needs to act as decisively as Putin has.

Putin’s many successes in his imperial project have come virtually without cost. His Eurasian Economic Community has corralled energy-rich states like Kazakhstan, Uzbekistan, and Turkmenistan into Russia’s camp. Georgia was dismembered in 2008. Armenia’s government was bullied into spurning the European Union’s offer of an Association Agreement.

Now the greatest geostrategic prize of all – Ukraine – may fall into Putin’s hands. Russia without Ukraine, former US National Security Adviser Zbigniew Brzezinski wrote, “ceases to be an empire, but Russia with Ukraine suborned and then subordinated, Russia automatically becomes an empire.” And, because the vast majority of Ukrainians have no desire to join Putin’s empire, we can be certain that the state Putin will lead from this point on will be a highly militarized one, rather like the Soviet Union but without the ruling Communist Party.

Given the scale of Putin’s adventurism, the world’s response must be commensurate. Canceled summits, trade deals, or membership in diplomatic talking shops like the G-8 are not enough. Only actions that impose tangible economic sanctions that affect Russian citizens – who, after all, have voted Putin into power time and again – offer any hope of steering the Kremlin away from its expansionist course.

Which sanctions might work?

First, Turkey should close the Dardanelles to Russian shipping, as it did after the 2008 Russo-Georgian War. Back then, Turkey closed access to the Black Sea to prevent the US from intervening, though the US, it is now clear, had no intention of doing so. Today, it should close the Turkish straits not only to Russian warships, but to all commercial vessels bound for Russia’s Black Sea ports. The impact on Russia’s economy – and on Putin’s military pretensions – would be considerable.

 

Turkey is permitted to close the Dardanelles under a 1982 amendment to the 1936 Montreux Convention. Indeed, Turkey could turn Putin’s justification for seizing Crimea – that he is protecting ethnic Russians there – against him, by arguing that it is protecting its Turkic Tatar kin, who, given Russia’s ill treatment of them in the past, are anxious to remain under Ukrainian rule.

 

Turkish Foreign Minister Ahmet Davuto?lu turned his plane around in mid-air this week to fly to Kyiv to offer support to the new interim government. Prime Minister Recep Tayyip Erdo?an, no pushover himself, as Putin well knows, should follow up on that gesture of support by immediately closing the straits to Russian shipping – until Putin recalls all troops in Crimea to their Sevastopol bases or to Russia proper. And Turkey should be offered an Article 5 guarantee from NATO should Russia seek to intimidate it.

 

Second, US President Barack Obama should impose the type of financial sanctions on Russia that he has imposed on Iran for its nuclear program. Those sanctions have crippled Iran’s economy. Similarly, denying any bank that does business with a Russian bank or company access to the US financial system would create the kind of economic chaos last seen in Russia immediately after the fall of Communism. Ordinary Russians should be made to understand that permitting Putin – whose primary claim to leadership is that he ended the penury of the first post-Soviet years – to continue with his imperialist aggression will cost them dearly.

 

Third, Obama should emphasize to the Chinese their stake in Eurasian stability. Putin may regard the Soviet Union’s disintegration as a tragedy, but for China it was the greatest geostrategic gift imaginable. At a stroke, the empire that stole millions of hectares of Chinese territory over the centuries, and that threatened the People’s Republic with nuclear annihilation, simply vanished.

 

Since then, Central Asia’s independent states, and even Ukraine, have become important trading partners for China. Russia’s conquests in Georgia greatly displeased China, as was seen at the post-war summit of the Shanghai Cooperation Organization (a regional grouping that includes ex-Soviet countries that share borders with China and Russia). Russia pushed the SCO to recognize the independence of Abkhazia and South Ossetia. But the SCO balked. The group’s Central Asian members – Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan – would not have stood up to the Kremlin without China’s support.

 

Today, however, Chinese President Xi Jinping may need to be less cryptic in his response to Putin’s adventurism. Indeed, the real test of China’s claim that it is a responsible stakeholder in the world community will come soon at the United Nations. Will it back Putin’s clear flouting of international law, or will it back Ukraine’s territorial integrity?

 

There are other possible punitive measures. Visas can be denied and canceled for all Russian officials. Assets can be frozen, particularly those laundered by oligarchs close to Putin. Only when the pain becomes intolerable, particularly for the elite, will Putin’s kampf be defeated.

The cost of inaction is high. Countless countries, from Japan to Israel, rely on America’s commitment to act robustly against grave breaches of the peace. Moreover, when Ukraine surrendered its nuclear weapons in 1994, it did so with the express understanding that the US (and the United Kingdom, France, and Russia) would guarantee its territorial integrity. Should Crimea be annexed, no one should gainsay Ukraine if it rapidly re-nuclearized its defense (which it retains the technological capacity to do).

When Chamberlain returned from Munich, Winston Churchill said, “You were given the choice between war and dishonor. You chose dishonor and you will have war.” Obama and other Western leaders face a similar choice. And if they choose dishonor, one can be certain that an undeterred Putin will eventually give them more war.

via Zero Hedge http://ift.tt/1hDEbzm Tyler Durden