Month: March 2014

Following last month’s massive miss on US manufacturing, ISM modestly beat excpectations today (53.2 vs 52.3 exp.) but remains near 8 months lows. This is still the largest 2-month drop since August 2011. New orders rose but production plunged and employment was unchanged as inventories surged. Respondents fell back on blaming the weather with “conservative optimism” a standout. In addition, construction spending beat expectations in January (and December) so it seems the weather did not affect that?

ISM Manufacturing bounced off January’s collapse…

and the breakdown:

What the respondents said:

• “Cold weather is having a negative impact on our business (garment). Orders are down.” (Apparel, Leather & Allied Products)
• “Continue to have trouble finding qualified CNC machinists. Desperately trying to hire CNC programmers.” (Fabricated Metal Products)
• “Bad weather hampering logistics across the country.” (Petroleum & Coal Products)
• “Higher than normal demand for this time of year.” (Transportation Equipment)
• “Very strong month in terms of growth.” (Computer & Electronic Products)
• “Many raw material disruptions due to weather and back-ups at the ports.” (Chemical Products)
• “We are seeing competition heat-up this year.” (Plastics & Rubber Products)
• “Slow January, but February orders are picking-up.” (Food, Beverage & Tobacco Products)
• “Conservative optimism re-kindling. Steady as it goes.” (Machinery)
• “Business continues to be stronger. Was at the KBIS/IBS show last week, and the feeling was much the same. Good last year and this year shows great promise.” (Furniture & Related Products)

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Just out from Reuters:

• INTERFAX UKRAINIAN DEFENCE MINISTRY AS SAYING  RUSSIAN FLEET HAS GIVEN UKRAINIAN FORCES IN CRIMEA UNTIL 0300  GMT TOSURRENDER OR FACE STORM

It appears Putin is still unaware of the “costs” he is facing.

Meanwhile:

#Crimea The Russian deadline of 4 o'clock for Ukrainian troops to vacate Belbek base has passed. No sign of Russian military eviction force

— Elizabeth Palmer (@elizapalmer) March 3, 2014

Interpreter notes that Ukraine’s first president, Leonid Kravchuk, who served between 1991 and 1994, wrote in the Russian publication Snob.ru today that this crisis could spark World War III:

“I call on the Russian authorities to stop. Between our peoples should not be war. Does Russia not understand that this is the beginning of World War III?” he warned.

 

He vowed to defend the land of his forefathers despite his age.

 

“My great-grandfather and grandfather fought in World War I, along with Russia. I am 80 years old, but I’ll take a gun and I will defend their land. Every citizen will defend their territory as their home.

 

“We knelt and Russia sat us down. Czechoslovakia, Poland, Afghanistan, Hungary. Now Ukraine is on the line?” he continued.

If the Russian troops try to take these bases, and the soldiers inside resist, is it possible that Kravchuk’s warning could come true?

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Moments ago GM reported that February total sales in February dropped 1% Y/Y to 222,2014, beating expectations of a 7.7% drop (if the same beat was not matched by GM’s key competitor Ford, whose February sales dropped 6.1%, below the 5.3% expected, and Volkswagen whose US sales tumbled 13.8%). The bounce was largely thanks to Buick sales which posted an 18.8% increase in February. However, the actual sales were largely irrelevant. What was notable is the following number: 805,769. This is the number of units in dealer inventory at month end. This was an increase from the 780,140 in January and is the largest ever channel stuffing print yet recorded by the post-bankruptcy GM in history.

Good luck liquidating all that pent up inventory without major incentives and margin crushing price reductions for the everyone in the distribution chain.

Source: GM

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Having earlier blasted John Kerry for his “lack of analysis” of the Ukraine situation and noted that China “understands” the Russian perspective, the Russian foreign ministry has issued a further statement defending its actions in Crimea: “…through the fault of the Bandera-type groups and other ultra-nationalistic forces, the measures we are taking are adequate and absolutely lawful.”

Via Interfax,

The measures Russia is taking to defend the population of the Crimea are adequate and lawful, the Russian Foreign Ministry said.

 

It said a legitimate government should be formed in Ukraine.

 

“We want the situation in Ukraine to get back to normal as soon as possible on the basis of the February 21 agreement, and a legitimate national unity government to be formed that would take the interests of all political forces and regions into account,” it said in a statement on Monday.

 

“In the current extraordinary situation, which has taken shape through no fault of our own, when the lives and security of residents of the Crimea and the southeastern regions have come under threat through the fault of the Bandera-type groups and other ultra-nationalistic forces, the measures we are taking are adequate and absolutely lawful,” the Foreign Ministry said.

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VIX has surged this morning above 16% – its highest in almost a month. This shift is well beyond the equity move for now as investors seek protection for their stocks and shift into bonds and gold (with the latter at 2014 highs).

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It appears the bank runs – or desparate dash for cash – in Ukraine have escalated. We noted that Russian banks had already limited access but now Unicredit has issued a statement “temporarily limiting operations on cash withdrawal in ATMs, in order to provide all the clients with an access to cash money.” The decision, they stress, is a temporary one (like Cyprus capital controls?) and will be cancelled with the “normalization of the situation.”

Via Unicredit,

UniCredit Bank has temporarily limited operations on cash withdrawal in ATMs, in order to provide all the clients with an access to cash money. According to the decision of the Management Board, the sum for cash withdrawal for one card is limited at the level of UAH 1500 per 24 hours.

We are stressing that these measures are taken exclusively to provide all the bank’s clients with ATM service. For the same purposes, cash withdrawals at UniCredit Bank’s ATMs using cards of other banks is limited 500 UAH per day.

This decision – is a temporary one and it will be cancelled in the nearest time with the normalization of situation. Besides, it does not involve operations in the trade networks.

We bring our apologies for temporary inconveniences and hope for understanding

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Moments ago the BEA released the January personal income and spending data, which surprised to the upside on both sides: Personal Income rose 0.3% in January, on expectations of a 0.2% increase, while spending roared up by 0.4% well above the 0.1% expected. Great news right? Well, not exactly.

First the December spending data was revised from 0.4% to 0.1%, just as expected, following the big miss in last week’s Q4 GDP revision. Second, of the $43.9 bilion increase in Peronal Income, some $29.8 billion, or over two thirds, was thanks to personal current transfer receipts, i.e., the government. But it was the personal spending breakdown that was truly surprising. One would think that based on a “bullish” take of the data, consumers opened up their wallets and purchased durable goods, such as TVs, gizmos, and what not, boost retailers top and bottom lines? Alas, that is not the case. The chart below shows the monthly increase in spending on durable and non-durable goods. Both declined.

So what happened in January to account for this spending spree? The chart below of spending on Services should explain it. Not the outlier spending in January, when “harsh weather” was said to have ground spending to a halt.

And there you have it: all services, in fact, in January US consumers spent a record amount of $72 billion on services. So, the Service Recovery, if not so much Goods. It appears the weather was so harsh and horrible it led to… the largest spending on services in history! Of course, nobody will mention this as it is a favorable benefit from the weather: remember the propaganda only identifies the negative data and scapegoats it with snow in the winter.

As for where US consumer got the funding, simple: personal savings declined once again, down to $540.1 billion from $544.5 billion, the fourth consecutive monthly drop, even if the savings rate of 4.3%, the lowest since March 2013, was more or less unchanged from the prior month.

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Today’s AM fix was USD 1,344.25, EUR 975.58 and GBP 803.50 per ounce.                            

Friday’s AM fix was USD 1,327.75, EUR 961.65 and GBP 793.21 per ounce.          

Gold fell $5.90 or 0.44% Friday to $1,324.60/oz. Silver dropped $0.11 or 0.52% at $21.17/oz. Gold was up 0.8% and silver finished down 2.93% last week.


Cross Currency Rates – (Bloomberg)

Gold gained more than 1.4% today on escalating geopolitical tensions. Ukraine mobilized for war after Russia bloodlessly seized Crimea, in what some are seeing as the most serious geopolitical crisis since the end of the Cold War.

The dollar was mixed and saw losses against the yen and Australian dollar but gains against the euro and the pound both of which came under pressure.

Stocks in Europe and Asia tumbled with U.S. equity-index futures and emerging currencies while gold, silver and Treasuries gained. The Standard & Poor’s 500 Index futures fell the most in a month and the FTSE, CAC and DAX were all down by between 1.2% and 2.3%.

The G7 industrialized nations condemned Russia’s intrusion into Ukraine and cancelled preparations for the G8 summit, that includes Russia, scheduled for Sochi in June, the White House said.

Gold rose to an intraday high around $1,345 an ounce. The United States is threatening to isolate Russia economically in what is the biggest confrontation between Russia and the West since the Cold War.

Premiums for gold bars in Singapore were unchanged from last week at 80 cents an ounce over the spot London prices.

Russia is the world’s largest energy exporter and economic and military friction between the superpowers could lead to a surge in key commodity prices. Crude oil hit multi-month highs.  Brent crude rose as much as 2% to $111.23 and NYMEX by 1.2% to $104.32.

U.K. natural gas jumped the most in more than 16 months and was 2.3% higher to $4.72 on supply concerns. Wheat and corn surged 4.3% and 3.3% respectively, also on supply concerns.

Russia’s central bank unexpectedly boosted its key interest rate 150 basis points as shares in Moscow plunged the most in five years. Russia’s Micex index plummeted over 8% and the ruble slipped to a record low versus the dollar.

Industrial metals retreated after Chinese manufacturing gauges for February signaled slower growth as officials prepare to meet this week on policy targets. A purchasing managers’ index of euro zone factory output is due today before U.S. reports on consumer spending and factory activity.

The negative data out of China and the heightened geopolitical risk in the Crimea is leading to a renewed bout of risk aversion which is supporting gold. This risk does not look like it will abate in the short or medium term. Indeed, should relations between Russia and Western nations deteriorate further, it will have consequences for already vulnerable economies and lead to increased safe haven demand.   

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