Tag: finance

• Ukraine Says Russia Exporting ‘Terror’ Amid Eastern Push (BBG)
• Civil War Threat in Ukraine (Reuters)
• China Shoe Plant Strike Disrupts Output at Nike, Adidas Supplier (BBG)
• Mt Gox to liquidate (WSJ)
• Ex-Co-Op Bank Chairman Charged With Cocaine Possession (BBG)
• Credit Suisse first-quarter profit falls as trading tumbles (Reuters)
• Goldman Sachs plans to jump-start stock-trading business (WSJ)
• U.K. Unemployment Rate Falls to Five-Year Low (BBG)
• Lawmakers Back High-Frequency Trade Curbs in EU Markets Law (BBG)
• Yahoo’s growth anemic as turnaround chugs along (Reuters)
• Spain ETF Grows as Rajoy Attracts Record U.S. Investments (BBG)
• Obama to Announce Targeted Job-Training Initiatives (WSJ)
• Italian Banks Seen Selling About $69 Billion of Bad Loans (BBG)
• Hollywood ending assured: Euro Periphery Emerges as Haven as Bonds Rise Amid Ukraine Feud (BBG)

 

 

Overnight Media Digest

WSJ

* Under pressure from unhappy clients and losing market share to rivals, Goldman Sachs Group Inc is trying to jump-start its stock-trading business. At recent trading conferences with top clients, including Fidelity Investments and BlackRock Inc< BLK.N>, and in private conversations, investors have vented their concerns with the way Goldman and other firms trade stocks, people familiar with the matter said. (http://ift.tt/1hL199O)

* Credit Suisse Group AG said Wednesday that first-quarter profit fell to 859 million Swiss francs ($976.91 million) from the 1.3 billion Swiss francs ($1.48 billion) it reported for the same period a year earlier as net revenue fell 8 percent to 6.47 billion Swiss francs ($7.36 billion).

* Defunct bitcoin exchange Mt. Gox has given up its plan to rebuild under bankruptcy protection and has asked a Tokyo court to allow it to be liquidated, people familiar with the situation said. (http://ift.tt/1hK3t0B)

* Online food-delivery company Seamless will revamp its fee structure after an investigation by New York state’s attorney general found that restaurants could cheat delivery workers out of tips, officials said Tuesday. (http://ift.tt/1hUCDgu)

* The Royal Bank of Canada is planning to close one of the last proprietary-trading desks on Wall Street, another win for regulators that have pushed banks to cut back on making big bets with their own money. (http://ift.tt/1hL199Q)

* Federal regulators plan to set aside a portion of choice spectrum for smaller wireless carriers at an auction of TV airwaves scheduled for next year. According to people familiar with the matter, the Federal Communications Commission plans to reserve a portion of that spectrum to prevent the two largest wireless carriers from purchasing it all. (http://ift.tt/1hUCDgw)

* Google Inc is planning a “modular” smartphone that consumers can configure with different features, executives said on Tuesday. Google envisions hardware modules, such as a camera or blood-sugar monitor, that would be available in an “app store,” like its own Google Play store for software applications. (http://ift.tt/1hL1au9) ($1 = 0.8793 Swiss Francs)

 

FT

Ukrainian forces launched a special operation on Tuesday to dislodge separatist militia in the Russian-speaking east, authorities said.

European lawmakers adopted a slew of landmark reforms on Tuesday designed to make banks safer and financial markets more transparent.

Belgium has gone past countries such as the UK and Switzerland as well as major oil-exporting nations to become one of the major holders of U.S. government debt.

New York state’s top financial regulator has ordered Credit Suisse to turn over employment records of its former New York head as part of a widening investigation into potential tax evasion involving the Swiss bank.

Shareholders in Barclays, miffed the with bank’s pay policies, plan to register a significant protest despite welcoming the appointment of a new remuneration committee chairman.

The Co-operative Group is facing pressure to adopt a watered-down version of radical reforms proposed by Lord Myners to turnaround the troubled British mutual.

NYT

* Detroit’s pension boards and a retirees’ group say they have reached tentative agreements with the city that could serve as a breakthrough in its quest to settle with its major creditors and propel itself out of bankruptcy before the end of the year. (http://ift.tt/1hL1aub)

* CTIA, the industry trade group that represents wireless carriers, said over a dozen companies, including Apple, AT&T, Google, Samsung Electronics and Verizon Wireless, had committed to offering free antitheft software for cellphones at the beginning of next year. Lawmakers like George Gascon, San Francisco’s district attorney, and Eric Schneiderman, New York’s attorney general, on Tuesday released a joint statement saying the trade group’s commitment was not a complete solution. (http://ift.tt/1hUCERu)

* Investors were already salivating over the initial stock offering of Chinese e-commerce company Alibaba Group. On Tuesday, they got a glimpse of its tremendous growth that is sure to whet their appetite even more. Alibaba made $1.4 billion in profit for its fourth quarter, more than double the amount it made during the same period a year earlier. Revenue jumped 66 percent, to nearly $3.1 billion. (http://ift.tt/1hUCDgy)

* In her first public appearance since enduring withering criticism at congressional hearings two weeks ago, General Motors Co Chief Executive Mary Barra told an audience of auto executives and dealers that the company was delivering parts and starting to fix the 2.6 million small cars it has recalled for faulty ignition switches that it has linked to 13 deaths. (http://ift.tt/1hL1auf)

* A crucial part of Wall Street still keeps federal regulators up at night. But Janet Yellen, the chairwoman of the Federal Reserve, said on Tuesday that the Fed was actively considering measures to strengthen that potential weak spot. Yellen said that despite an onslaught of new bank regulations, risks remained in the markets where Wall Street firms and other entities lend and borrow hundreds of billions of dollars for short periods. (http://ift.tt/1hUCERA)

* A laboratory study presented early this year reported that the nicotine-laced vapor generated by an electronic cigarette promoted the development of cancer in certain types of human cells much in the same way that tobacco smoke does. Researchers involved in the little-noticed study emphasized that their findings were preliminary and that the study did not involve people but specially treated human lung cells. (http://ift.tt/1hL1auj)

 

Canada

THE GLOBE AND MAIL

* Calgary police allege Matthew de Grood, 22-year-old son of a senior Calgary police officer, walked into a house party full of university students raising toasts to the end of the school year, grabbed a large kitchen knife and stabbed five of them repeatedly. (http://ift.tt/1hUCDgC)

* Canadian Prime Minister Stephen Harper will deliver a very personal eulogy for former Finance Minister Jim Flaherty, who died last week, that he wrote himself as he bids goodbye to the man who steered his government’s finances through rough waters. (http://ift.tt/1hL19qa)

Reports in the business section:

* On the lookout for business opportunities where rivals such as Apple Inc and Google Inc have not yet dominated, BlackBerry Ltd is making a push into health care. The Canadian smartphone maker announced on Tuesday it is purchasing a minority stake in California-based health care firm NantHealth. (http://ift.tt/1hUCERH)

NATIONAL POST

* The Royal Canadian Mounted Police will not lay criminal charges against Prime Minister Stephen Harper’s former chief of staff, Nigel Wright, over his controversial C$90,000 payment to Senator Mike Duffy. (http://ift.tt/1hL19qc)

* The Canadian Prime Minister’s Office is emphatically denying a former adviser’s allegation that Stephen Harper is subject to bouts of depression that leave him incapable of making decisions. Former Conservative Party strategist Tom Flanagan makes the claim in an excerpt from a forthcoming book. (http://ift.tt/1hUCDwQ)

FINANCIAL POST

* Canadian financier Prem Watsa is cashing in by investing where many others fear to tread, betting on two of Europe’s most beleaguered economies Ireland and Greece as they recover post-bailout, and tripling down on the latter. (http://ift.tt/1hL1aul)

* The head of Newfoundland and Labrador’s Crown energy company says costs for the C$7.7-billion Muskrat Falls hydro project are going up and the date when first power is generated from the dam may be delayed. (http://ift.tt/1hUCDwU)

 

China

CHINA SECURITIES JOURNAL

– China Financial Futures Exchange said it would accelerate the launch of stock index options, which would be based on an index of the 300 largest companies on the Shanghai and Shenzhen stock exchanges.

SHANGHAI SECURITIES NEWS

– Land prices rose 1.89 percent on a quarter-on-quarter basis in the first quarter, 0.17 percentage points lower than the fourth quarter of 2013 and the slowest growth in the last seven quarters, according to figures published by the China Land Surveying and Planning Institute, a research institute under the Ministry of Land Resources.

21st CENTURY BUSINESS HERALD

– China’s ‘Big 4’ banks suffered deposit outflows worth 1.9 billion yuan ($305.4 million) in the first two weeks of April, unnamed bank sources told the newspaper.

CHINA DAILY

– Executives from U.S. electric carmaker Tesla Motors Inc will visit China Petroleum & Chemical Corp (Sinopec) next week to discuss potential cooperation to establish vehicle-charging facilities, an insider with the Chinese company told China Daily on Tuesday.

CHINA BUSINESS NEWS

– House prices in Macao have risen by 10 times over the past decade in Macao, raising concerns of a real estate bubble, the newspaper said.

Britain

The Times

CHEAPER PETROL AND FOOD KEEP INFLATION ON DOWNWARD TREND

Britain is experiencing the longest run of falling inflation for more than two decades after the annual rate of consumer price inflation dropped from 1.7 percent in February to 1.6 percent last month. I

EX-JJB BOSS ‘BORROWED 3 MLN STG AFTER HUGE GAMBLING LOSSES’

The former boss of the collapsed retailer JJB Sports had racked up large debts “possibly due to gambling” before he borrowed 3 million pounds from two of his closest rivals, a court heard.

The Telegraph

DEBENHAMS BOSS: I DON’T KNOW WHY MIKE ASHLEY BOUGHT STAKE

The chief executive of Debenhams has claimed he does not know why Mike Ashley, the sportswear tycoon, bought a stake in the department store retailer.

DIAGEO IN 1.1-BLN-STG TENDER OFFER FOR UNITED SPIRITS SHARES Diageo, the world’s largest spirits maker, could end up with 54.8 percent of leading Indian spirits group.

The Guardian

NOTTINGHAM CIGARETTE FACTORY CLOSURE THREATENS MORE THAN 500 JOBS Closure of Imperial’s last factory and distribution hub will put an end to cigarette manufacturing in mainland Britain.

INFLATION FALLS TO 1.6 PCT, THE LOWEST SINCE OCTOBER 2009 News comes a day before labour market figures are expected to confirm that wage growth has finally overtaken inflation.

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS
Domestic economic reports scheduled today include:
Housing starts for March at 8:30–consensus up 7.0% to 965K rate
Housing permits for March at 8:30–consensus down 0.4% to 1.01M rate
Industrial production for March at 9:15–consensus up 0.5% for the month

ANALYST RESEARCH

Upgrades

Apollo Investment (AINV) upgraded to Overweight from Neutral at JPMorgan
Control4 (CTRL) upgraded to Strong Buy from Outperform at Raymond James
Cree (CREE) upgraded to Buy from Hold at Needham
Family Dollar (FDO) upgraded to Neutral from Underperform at Sterne Agee
First Security (FSGI) upgraded to Outperform from Market Perform at Raymond James
Genuine Parts (GPC) upgraded to Neutral from Sell at Goldman
Greenhill & Co. (GHL) upgraded to Neutral from Reduce at Nomura
Lincoln National (LNC) upgraded to Overweight from Equalweight at Barclays
Nimble Storage (NMBL) upgraded to Buy from Neutral at UBS
Piedmont Office Realty (PDM) upgraded to Market Perform at BMO Capital
Precision Drilling (PDS) upgraded to Overweight from Underweight at Morgan Stanley
Santander Consumer USA (SC) upgraded to Overweight from Neutral at JPMorgan
SouFun (SFUN) upgraded to Buy from Neutral at Goldman
Time Warner Cable (TWC) upgraded to Outperform from Market Perform at Wells Fargo
Twitter (TWTR) upgraded to Neutral from Underperform at Sterne Agee
United Natural Foods (UNFI) upgraded to Buy from Hold at Jefferies
Volvo (VOLVY) upgraded to Hold from Sell at Deutsche Bank
WhiteHorse Finance (WHF) upgraded to Overweight from Neutral at JPMorgan
Xoom (XOOM) upgraded to Equal Weight from Underweight at Evercore
Yahoo (YHOO) upgraded to Outperform from Market Perform at Wells Fargo
Yelp (YELP) upgraded to Buy from Neutral at Citigroup
Zebra Technologies (ZBRA) upgraded to Outperform from In-Line at Imperial Capital

Downgrades

Compressco (GSJK) downgraded to Market Perform from Outperform at Raymond James
Fidelity & Guaranty Life (FGL) downgraded to Neutral from Outperform at Macquarie
Intel (INTC) downgraded to Neutral from Buy at B. Riley
Motorola Solutions (MSI) downgraded to Neutral from Buy at Nomura
NetApp (NTAP) downgraded to Neutral from Buy at UBS
Reinsurance Group (RGA) downgraded to Equalweight from Overweight at Barclays
Superior Energy (SPN) downgraded to Equal Weight from Overweight at Morgan Stanley
UnitedHealth (UNH) downgraded to Neutral from Buy at Citigroup

Initiations

A10 Networks (ATEN) initiated with a Buy at BofA/Merrill
A10 Networks (ATEN) initiated with an Equal Weight at Morgan Stanley
A10 Networks (ATEN) initiated with an Outperform at Oppenheimer
A10 Networks (ATEN) initiated with an Outperform at Pacific Crest
A10 Networks (ATEN) initiated with an Outperform at RBC Capital
Centene (CNC) initiated with a Neutral at UBS
FS Investment (FSIC) initiated with an Overweight at Evercore
ImmunoGen (IMGN) initiated with a Buy at Canaccord
Laredo Petroleum (LPI) initiated with an Outperform at RW Baird
Lpath (LPTN) initiated with a Buy at Canaccord
MediWound (MDWD) initiated with an Outperform at Oppenheimer
Medivation (MDVN) initiated with a Hold at Canaccord
NPS Pharmaceuticals (NPSP) initiated with a Buy at Canaccord
Nimble Storage (NMBL) initiated with a Market Perform at Raymond James
Regeneron (REGN) initiated with a Buy at Canaccord
Sibanye Gold (SBGL) initiated with an Outperform at Imperial Capital

COMPANY NEWS
Credit Suisse (CS) said making progress in resolving litigation issues
Sony (SNE), Hydro-Quebec formed JV for large-scale energy storage system for power grids
NBCUniversal (CMCSA, CMCSK) planning digital video push
Zogenix (ZGNX) confirmed that a U.S. District Court judge prevented the ban on sales of the company’s Zohydro pain medication in Massachusetts
Intel (INTC) said it expects FY14 revenue to be roughly flat when compared to the prior year
Yahoo (YHOO), which reported Q1 profit and sales that beat expectations, said Q4 revenue at Alibaba, the Chinese group of e-commerce sites in which Yahoo has a 24% stake, increased 66% year-over-year to $3.06B. Yahoo said moving from declining growth to ‘stable to modest’ growth
CSX (CSX) CEO seeing ‘good strength in economy’

EARNINGS
Companies that beat consensus earnings expectations last night and today include:
PNC Financial (PNC), ADTRAN (ADTN), Linear Technology (LLTC), Interactive Brokers (IBKR), Yahoo (YHOO), Wintrust Financial (WTFC), CSX (CSX), Intel (INTC)

Companies that missed consensus earnings expectations include:
Marten Transport (MRTN)

Companies that matched consensus earnings expectations include:
Huntington Bancshares (HBAN)

NEWSPAPERS/WEBSITES

Goldman Sachs (GS) tries to jump start stock-trading business amid concerns, WSJ says
Ford (F) could replace MyFord Touch, Detroit News says
Sony (SNE) looks to revive TV business with 4K technology, Nikkei reports
Martha Stewart (MSO) back in court on pet products suit, Reuters says
CONMED (CNMD) exploring sale of company, Reuters reports
GM (GM) CEO says recalled cars being fixed, NY Times reports
Telefonica (TEF), Blackstone (BX) to form Axonix mobile-advertising venture, WSJ reports
Samsung (SSNLF), Sony Mobile (SNE), HTC to release mini smartphone models, DigiTimes says

SYNDICATE
Athlon Energy (ATHL) announces public offering of 11M shares of common stock
Moelis (MC) 6.5M share IPO priced at $25.00
OpusBank (OPB) 5.126M share IPO priced at $30.00
TriVascular Technologies (TRIV) 6.5M share IPO priced at $12.00

via Zero Hedge http://ift.tt/1hL1clX Tyler Durden

Moments ago Bank of America reported its Q1 earnings, and as expected, they were quite a mess, with the bank posting an actual loss of $0.05 on expectations of a $0.27 beat, which however – in the spirit of JPM – was the result of a $6 billion pretax charge related to various litigation items, which amounted to $0.40 per share. So Bank of America would like you, dear bank analysts, to do what you do to JPM every quarter with its recurring “non-recurring” litigation item, and please add it back.

These were the add backs:

• 1Q14 net loss of $0.05 per diluted share included pre-tax litigation expense of $6.0B, or $0.40 per share after-tax
  • $3.6B pre-tax expense associated with previously announced FHFA settlement
  • $2.4B pre-tax expense for additional reserves primarily for previously disclosed legacy mortgage-related matters

The only good news at the P&L level was that the Q1 reserve release was “only” $379 million, down from $804 million in fake earnings a quarter ago.

But what is worse is that Bank of America reported Net Interest Income of $10.1 billion, far below the expected $11 billion, and an amount that had nothing to do with legal fees, “one-time” charges and reserve releases.

Why was this number so weak? Because not only does BofA’s balance sheet continue to collapse, with its mortgage services portfolio crashing from $1.185 trillion to just $780 billion, but because BofA just reported the lowest NIM, or Net Interest Yield as it likes to call it, in history at 2.29%. So much for that NIM surge that everyone was expecting.

And speaking of BofA’s balance sheet things turned decided sour in Q1 when the bank’s provision for credit losses – an amount that flows directly through the P&L – soared from$0.3 billion to $1.0 billion, the highest since Q2 2013.

As the bank explained, “Provision for credit losses increased from 4Q13 due to slowing pace of credit quality improvement.” Alternatively, one could call it what it is: an increasing pace of credit deterioration, hence the loss provision surge.

Going down the balance sheet, no surprise that like all the other major banks, BofA too was skwered when it comes to mortgages.

BofA’s comments on this deterioration:

• Total first-lien retail mortgage originations were $8.9B, down 24% from 4Q13… and down over 60% from Q1 2013.
• Servicing income declined $205MM from 4Q13 due to the continued decline in the size of the servicing portfolio combined with less favorable MSR net hedge results

End result: “Total staffing declined 11% from 4Q13, due primarily to continued reductions in LAS, as well as actions taken in sales and fulfillment as refinance demand slowed”

Elsewhere, there was no joy in tradeville either, as like all the other banks, BofA also succumbed to the ongoing contraction in trading across the board:

BofA’s commentary:

• FICC revenue decreased $51MM, or 2%, vs. 1Q13, driven by weaker results in Rates and Currencies due to declines in market volumes and volatility; revenue increased $870MM vs. 4Q13 from seasonally stronger results
• Equities revenue was flat compared to 1Q13; revenue increased 28% vs. 4Q13 on seasonally higher client activity

Bottom line, despite all the bluster and posturing one is about to hear on the conference call, here is how the bank sees its future

Full earnings report:

via Zero Hedge http://ift.tt/1ePNZT2 Tyler Durden

We summarized yesterday’s both better and worse than expected Chinese GDP data as follows: “a substantial deterioration of the economy, one which was to be expected yet one which can be spun as either bullish thanks to the GDP “beat”, and negatively if the purpose is to make a case for more PBOC stimulus.” Sure enough here are the headlines that “explain” the latest overnight futures surge which has once again brought the S&P into the green on the year – a 40 point Spoo move in hours since yesterday’s bottom when the Nikkei “leaked” Japan’s economy is on the ropes :

• Stocks Rise on China Stimulus Speculation

Here one should of course add the comment that launched yesterday’s rebound, namely the Japanese warning that its economy is about to contract, adding to calls for more BOJ stimulus, and finally this other Bloomberg headline:

• The Strengthening Case for ECB Easing

And there you have it – goodbye “fundamental” case; welcome back “central banks will once again bail everyone out” case. Hopefully today’s news are absolutely abysmal to add “US economic contraction fear renew calls for untapering” to the list of headlines that should send the S&P to all time highs by the end of today.

What else is going on: stocks in Europe partially shrugged off mounting concerns over Ukraine and remained in the green, benefiting from a positive close over on Wall Street which consequently filtered over into the Asian session (Nikkei 225 +3.0%).

GBP rallied across the board and Short-Sterling curve bear-steepened after UK unemployment rate fell to 6.9%, below the 7% threshold as advocated by the BoE. Britain’s unemployment rate dropped to a five-year low in February, underscoring the strength of the economic recovery and raising the prospect of a debate among Bank of England officials about whether to raise interest rates

Looking at the day ahead, though we may run into some pre-Easter pockets of illiquidity, there’s still plenty of data and Fed speak ahead today for the markets to mull. Ahead of the four-party EU/US/Russia/Ukraine summit in Geneva on Thursday, it will be worth watching what political leaders have to say today on the prospect of sanctions. European data will be centred on the final Euroarea CPI for March, UK unemployment and Spanish trade. Across the Atlantic, Yellen’s speech to the Economic Club of NY is scheduled for around 5:25pm London time, but the text of her speech may be made available shortly before that. The Fed’s Stein and Lockhart will be speaking at the Atlanta Fed’s financial market conference while the Dallas Fed’s Fisher speaks in Texas shortly after Yellen. In terms of US data, housing starts, building permits and industrial production are the key releases. The Fed Beige Book may provide more anecdotal commentary on how activity is recovering post-winter. BofA and Google report earnings today.

Bulletin headline summary from Bloomberg and RanSquawk

• Treasuries decline within ranges seen since Friday as stocks in Asia and Europe and commodities rebound from recent losses; trading may slow before Yellen’s speech in New York, long holiday weekend.
• China’s GDP rose 7.4% in 1Q, weakest pace in six quarters; industrial production and fixed-asset investment trailed     projections while property construction plunged
• Offshore yuan traded near a 14-month low after the PBOC weakened the currency’s reference rate for a third day
• The euro area’s core inflation rate fell more than initially estimated in March, keeping pressure on the ECB to take action to boost prices
• Ukraine accused Russia of fueling “terrorism” in its eastern provinces as government troops pressed on with an offensive to rein in separatist unrest
• Japan’s government may downgrade its economic assessment for the first time since November 2012 amid a drop in consumption after this month’s sales-tax increase, the Nikkei newspaper reported, without citing anyone
• Chinese investors demanding their money back from a troubled 973 million-yuan ($156 million) high-yield product in Shanxi province were confronted by police in front of a China Construction Bank Corp. branch
• Sovereign yields mostly higher. Asian stocks gain, Nikkei +3%, Shanghai +0.2%. European equity markets, U.S. stock futures gain. WTI crude and copper higher, gold lower

US Event Calendar

• 7:00am: MBA Mortgage Applications, April 11 (prior -1.6%)
• 8:30am: Housing Starts, March, est. 970k (prior 907k)
• Housing Starts m/m, March, est. 7% (prior -0.2%)
  Building Permits, March., est. 1.010m (prior 1.018m, revised  1.014m)
• Building Permits m/m, March, est. -0.4% (prior 7.7%, revised 7.3%)
• 9:15pm: Industrial Production m/m, March, est. 0.5% (prior 0.6%)
• Capacity Utilization, March, 78.7% (prior 78.8%, revised 78.4%)

Fed action

• 8:30am: Fed’s Stein speaks on QE at Atlanta Fed conference at Stone Mountain, Ga.
• 12:00pm: Fed’s Lockhart speaks at Stone Mountain
• 12:25pm: Fed’s Yellen speaks to Economic Club of New York
• 1:25pm: Fed’s Fisher speaks in Austin, Texas
• 2:00pm: Federal Reserve releases Beige Book
• 8:30pm: Bank of Japan’s Kuroda speaks at branch managers meeting
• 11:00am POMO: Fed to purchase $900m-$1.15b in 2036-2044 sector

Asian Headlines

Asia-Pacific focus was on the Chinese GDP: (Q1) Y/Y 7.4% vs. Exp. 7.3% (Prev. 7.7%), which supported gains in equity markets overnight. However, Chinese equities slightly underperformed as quarterly figures showed the slowest growth since late 2012. Other data releases included softer industrial production (8.8% vs. Exp. 9.0%) and weaker quarterly growth (1.4% vs. Exp. 1.5%).

EU & UK Headlines

Concerns over the instability in Ukraine failed to support safe-have assets, with both Gilts and Bunds trading sharply lower after the release of the latest UK jobs report, which revealed that the unemployment rate is now below the BoE’s 7% threshold and stands at its lowest since 3 months to February 2009. This in turn prompted aggressive bear-steepening of the Short-Sterling curve as market participants contemplated of an earlier tightening move by the BoE.

However analysts at UBS suggested that inflation matters more than UK jobs and believe that GBP is stretched, adding that the BoE will try to emphasize soft inflation in context of policy and spare capacity, and may disappoint those looking for early tightening.

The release of the latest EU CPI data which Y/Y core at 0.7% vs. Exp. 0.8% and Y/Y at 0.5% vs. Exp. 0.5% acted as a reminder of potential emergence of deflation in the joint-currency bloc. On that note, analysts at Bank of America believe that the ECB needs EUR 1trl in QE for measures to be effective, adding that the ECB will have to purchase government bonds as well as private sector assets in event of QE and that at least EUR 75bln (EUR 40bln in govt bonds) per month would be necessary.

US Headlines

Intel Corp and Yahoo! shares traded sharply higher after the closing bell on Wall Street yesterday after reporting consensus beating earnings. In terms of earnings, focus will be on Google, IBM, Bank of America and also American Express.

Equities

Equities in Europe, initially buoyed by a positive close over on Wall Street and the consequent risk on sentiment over in Asia, failed to hold onto the best levels of the session as concerns over the growing instability in Ukraine weighed on sentiment. Nevertheless, heading into the North American open, stocks are seen higher across the board, with consumer services as the outperforming sector as Tesco shares surged over 5% following earnings pre-market.

FX

The release of better than expected UK jobs report saw GBP rally across the board, with GBP/USD advancing to its highest level since Feb, while EUR/GBP tested April lows. At the same time, the USD failed to benefit from the risk averse sentiment amid the uncertainty surrounding direct implications of further sanctions on Russia and its appetite for the global reserve currency. As a result, in spite of lower EUR/GBP, EUR/USD remained better bid.

Commodities

WTI and Brent crude futures remain higher, with Brent at early March highs and above USD 110/bbl as markets remain nervy over Ukrainian tensions. The energy complex has been on the front foot following the original headlines of APCs defecting from the Ukrainian army to fly the Russian flag and move into Slavyansk ahead of potential anti-terror operations directed by President Turchynov. The continued mobilisation of military units has heightened market expectations of further conflict in the area after fatalities were reported yesterday.

Yesterday’s API inventory data is as follows:
– US API Crude Oil Inventories (Apr 12) W/W 7640k vs. Prev. 7080k
– Cushing Crude Inventories (Apr 12) W/W -640k vs. Prev. 204k
– Gasoline Inventories (Apr 12) W/W -499k vs. Prev. -3650k
– Distillate Inventories (Apr 12) W/W -1110k vs. Prev. 293k

* * *

Jim Reid’s overnight recap concludes this summary

China’s Q1 statistical update was released earlier this morning and it was met with a mixture of relief and pessimism which will only heighten the market’s confusion as to the state of the domestic economy. Starting with GDP, growth in Q1 was measured at 7.4% y/y which marginally beat median market expectations of 7.3% but was consistent with DB’s estimates. There is some relief that growth beat consensus but Q1’s growth rate was still below 4Q13’s growth of 7.7%. The other negatives are that Q1’s y/y growth is a cyclical low and the annualised Q/Q GDP number works out to be just 5.7%. Retail sales grew 12.2% YoY in Q1 which again was just ahead of estimates of 12.1% but substantially below 4Q13’s 13.6%. Industrial production missed estimates at 8.8% (vs 9.0% consensus and 9.7% recorded in Q4). Finally, fixed asset investment grew 17.6% YTD YoY which was below expectations of 18.0%. So all in all, evidence of slowing growth and activity which is consistent with recent PMIs, but perhaps not as bad as the market had feared from an overall GDP growth point of view. To add to the confusion there’s also a sense that the numbers were not bad enough to prompt a sudden easing of policy from the  Chinese authorities. Something for both the bears and the bulls here this morning.

Unsurprisingly the reaction to the data has been mixed. The Nikkei and S&P 500 futures rallied into the data releases, and though some of the gains have been pared since, both are still sitting on healthy gains this morning. There are some heightened expectations that the BoJ will ease further in the coming months as the Nikkei reported that the Japanese cabinet may downgrade its economic outlook when it issues its monthly assessment tomorrow. This would be the first downgrade since late 2012. The reaction to the data from Chinese equities was more negative and we saw the Shanghai Composite shed 0.9% in the minutes after – however it too is now trading in positive territory. Shanghai copper is up 0.2% and the AUDUSD is steady at 0.935. Despite the negative headlines emanating from Ukraine yesterday, Asian EM is having a decent run today helped by firmer US treasuries. Asian EM equity bourses are generally firmer today and Asian credit is flat to a couple of basis points tighter on the day.

The story of yesterday was the large intra-day swings in markets with the S&P 500 (+0.68%) covering more than 27 points from it’s early peak, down to its
the intraday low and retracement up to the closing highs. All day it appeared that markets were playing out a tug of war between the headwinds of geopolitical headlines versus the tailwinds of strong US corporate results. On the geopolitical side, events in the Ukraine took a turn for the worse as Putin described Ukraine as being on the brink of a civil war as clashes were recorded in a number of eastern Ukraine flashpoint cities. The Ukrainian government claimed that Russia’s 45th airborne division had crossed the border into its territory. It seems that Thursday’s four-party EU/Russia/US/Ukraine summit in Geneva will be a pivotal event heading into the long weekend. The probability of further sanctions against Russia appears to be growing and the yield on Russian government bonds gapped out by 16bp, slightly less than spreads on Russian banks which gapped out more than 20bp. Sberbank of Russia’s US ADR’s were down 3.6% in US trading.

Risk recovered as US participants started their day, spurred by some solid premarket results from Johnson & Johnson and Coca-cola. Coke’s management was relatively upbeat on its outlook and it said that Coke was enjoying revenue growth in EM including China (+12%), Brazil (+4%) and Russia (+6%). After  the closing bell, Intel reported EPS above consensus on the back of better gross margins (Q1 59.7% vs 59.1% expected) and was also positive on the outlook of Q2 margins. Intel was relatively upbeat in its forecast for Q2 saying that business PC upgrades are set to pick up. However the broader macro implications of this might be limited given that upgrades are occurring based on Microsoft ceasing support for its Windows XP operating system. Intel’s stock was up 3.5% in aftermarket trading. Yahoo! Inc also reported strong results and the stock surged 9% in afterhours trading.

US treasuries started the overnight session firmer on Ukraine fears but gave up most of those gains after the release of a stronger than consensus US CPI report. 10yr yields closed 2bp firmer (2.63%) but the shorter end of the curve underperformed with 5yr yields up nearly 1bp. Both headline and core US CPI printed at +0.2% in March (vs expectations of +0.1% for both). This had the effect of lifting the YoY rate in the headline to +1.5% from +1.1% previously (1.4% exp); and the core moved up to +1.7% from +1.6% previously. In other data, the NY Empire state manufacturing index for April fell to +1.3 (vs.  +5.6), the lowest level since November 2013 (+0.8). However the six month outlook on capital expenditures (+23.5 vs. +16.5) rose to one of its strongest  levels in many months. DB’s economists have maintained their forecast for this Thursday’s Philly Fed survey (+10.0 forecast vs. +9.0 previously). Elsewhere the US Homebuilders’ sentiment index rose 1 point to 47 (vs 49 expected) due entirely to a 4 point increase in the six-month outlook (57 vs. 53).

Yellen’s brief remarks at the Atlanta Fed’s financial markets conference were mostly related to the issue of financial stability. In a short speech, Yellen urged further action to strengthen liquidity regulations for banks and she spoke in firm support of the Basel Committee’s Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) measures. In addition to that she said that the Fed is considering additional measures to strengthen liquidity requirements  in the financial markets via minimum margin requirements for repos and other security financing transactions which could apply on a market-wide basis. Though she steered clear of talking about monetary policy, we’re likely going to hear more on this topic when the Fed Chair speaks at the Economic Club of NY today.

With many in the market talking about next steps for the Bank of Japan, there are a couple of interesting economic headlines this morning. The country’s finance minister made some vague comments in parliament that the Government Pension Investment Fund “will make a move” in the stock market in June, perhaps hinting at imminent asset allocation changes. In terms of the impact of the country’s recent 3% sales tax hike, the Nikkei says that anecdotal evidence suggests that the effect hasn’t been all bad, which were echoed by the Japanese PM earlier this morning. According to the Nikkei, supermarkets and electronics stores, which saw sales dip right after the tax increase, are now saying the slump is tapering off. Aeon Retail, which runs large general merchandise stores, reported that over the second weekend of April, same-store sales recovered to about the same level seen the previous year. Department stores, on the other hand, are having a lot of trouble moving luxury products with little recovery one the second weekend of April. The Nikkei says that two Isetan Mitsukoshi stores, sales of such products are down 50% on the year. The article suggests that perhaps the demand for larger ticket items was disproportionately pulled forward ahead of the tax hike.

Looking at the day ahead, though we may run into some pre-Easter pockets of illiquidity, there’s still plenty of data and Fed speak ahead today for the markets to mull. Ahead of the four-party EU/US/Russia/Ukraine summit in Geneva on Thursday, it will be worth watching what political leaders have to say today on the prospect of sanctions. European data will be centred on the final Euroarea CPI for March, UK unemployment and Spanish trade. Across the Atlantic, Yellen’s speech to the Economic Club of NY is scheduled for around 5:25pm London time, but the text of her speech may be made available shortly before that. The Fed’s Stein and Lockhart will be speaking at the Atlanta Fed’s financial market conference while the Dallas Fed’s Fisher speaks in Texas shortly after Yellen. In terms of US data, housing starts, building permits and industrial production are the key releases. The Fed Beige Book may provide more anecdotal commentary on how activity is recovering post-winter. BofA and Google report earnings today.

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Submitted by Robert Merry via The National Interest,

In the spring of 2012, The National Interest produced a special issue under the rubric of “The Crisis of the Old Order: The Crumbling Status Quo at Home and Abroad.” The thesis was that the old era of relative global stability, forged through the crucibles of the Great Depression and World War II, was coming unglued. In introducing the broad topic to readers, TNI editors wrote, “Only through a historical perspective can we fully understand the profound developments of our time and glean, perhaps only dimly, where they are taking us. One thing is clear: they are taking us into a new era. The only question is how much disruption, chaos and bloodshed will attend the transition from the Old Order to whatever emerges to replace it.”

Since publication of that special issue of the magazine, events have seemed to bolster the thesis that the current global situation and the American domestic political situation are inherently unstable, and stability will return only with the emergence of some kind of new order. Leaving aside the U.S. domestic scene for purposes of this digression, the gathering global crisis got a penetrating survey the other day from William Pfaff, the longtime geopolitical analyst for the International Herald Tribune (recently renamed the International New York Times).

Pfaff said the world faces an “international disorder unmatched since the interwar 1930s,” fostered by the ongoing Ukraine crisis, the “self-destructive forces” of the Israeli-Palestinian conflict, growing instability within the world of Islam, and the “serious risk of collapse” of the European Union. Pfaff notes with a small measure of relief that the world isn’t beset these days by ideological dictatorships on the march or any new waves of totalitarianism. Today’s problems, he says, are merely “confusion, incompetence, and intellectual and moral disorder.” He adds: “But these are bad enough, in an over-armed world.”

What’s most troubling about all this is that today’s national leaders seem utterly lacking in any serious consciousness of just how dangerous the global situation is. The current Ukraine crisis , for example, is the product of a long-term Western tendency (the word “strategy" hardly qualifies here, given the lack of any coherent logic involved) to push eastward through what once were the buffer territories of Eastern Europe and press right up to the Russian border.

Though highly provocative, this didn’t generate any serious crisis when Russia remained weak after the Soviet collapse and the eastward push didn’t extend into territories that for centuries had been part of Russia’s traditional sphere of influence. But the United States, European Union and NATO remained blithely unmindful of the consequences when they kept pushing as Russia gained sufficient power to resist incursions into its areas of crucial national interest. What were the leaders of these Western entities thinking?

Pfaff puts that question a little differently: “Why Should Slavic and Orthodox-Uniate Ukraine, its history painfully intertwined with Russia’s, be made a member of what was and still essentially is Charlemagne’s post–Roman Europe?” With one sentence he places today’s sordid events surrounding Ukraine into a broad historical perspective of more than a millennium.

For that matter, adds Pfaff, “Why does Turkey belong in Christian Europe?" He wonders if President Obama, should he be asked such questions, could give a considered and historically grounded answer. “Or does the machinery of foreign-policy making grind relentlessly along behind Mr. Obama’s back, or beyond his attention?”

Good question. And it’s particularly intriguing given the machinations of that meddling bureaucrat, Victoria Nuland, Assistant Secretary of State for European and Eurasian Affairs, who worked behind the scenes  to foment the uprising that eventually ousted the duly-elected Ukrainian president, Viktor Yanukovych. She even identified the man who should replace Yanukovych after his ouster and—presto!—he did indeed emerge as Ukraine’s interim leader. It turns out that the United States has spent some $5 billion in fostering “democratic institutions” in Ukraine designed to nudge the country away from Russian sway.

Saner heads would have understood just how dangerous this kind of activity can be. And so some questions intrude: Did anyone in the State Department inform President Obama that this was going on? If anyone had, would the president or his informant have understood the potentially incendiary nature of such diplomatic intrusiveness? Or was the president simply left in the dark, as Pfaff has suggested, while his minions engaged in activity destined to create an unnecessary crisis in U.S.-Russian relations and possibly unleash destabilizing ethnic tensions in a crucial corner of the world?

For historical perspective, it’s worth noting that we look back now with a certain disdain upon the heads of state grappling with events leading to World War I. Those events ended a century of relative stability and peace in Europe, and the men who let that grand epoch pass are seen in history as hapless, out of touch, even stupid. In fact, they weren’t stupid, but they were out of touch and that rendered them hapless in the face of events they didn’t understand.

President Obama and those around him aren’t stupid either, but they don’t seem to understand the nature of our time and the challenges posed by a fading era. They seem incapable of grappling with the kinds of broad historical questions posed by William Pfaff.

But the problem doesn’t reside only with the current administration. There seems to be a zeitgeist in play that retards the ability of our leaders and intellectuals to grasp the transformative nature of our time and hence the havoc besetting the globe. Pfaff is equally hard on George W. Bush and his father, George H. W. Bush, particularly regarding what he calls “the Muslim conflagration.” He writes: “Iraq, Syria, Egypt, Libya, Yemen, Lebanon, Afghanistan, Pakistan—in all of them, a President Bush, or President Obama, together with his accomplices, has passed their way, sowing annihilation."

He’s right, of course, and equally correct in dismissing the ongoing efforts by U.S. officials to find a solution to the Israeli-Palestinian conflict “in the face of the manifest unwillingness of Israel to allow the conflict to be solved on any terms that do not expel all the Palestinians from the Palestinian Occupied Territories, and award these to Israel (God’s lands, therefore Zionist Israel’s: Sheldon Adelson, sales agent)."

One could argue that it isn’t in America’s interest to push Israel on this matter, though that is eminently debatable. More to the point, though, is the haplessness of a nation continually going back to the well with high expectations of finding water, when in fact the well has been dry for decades. That kind of behavior by any nation denotes a clear lack of seriousness.

Seriousness is what the times call for. We are living through a crisis of the old order, and it demands new thinking, new cautions, new understandings of the profound challenges of this pregnant historical interregnum. If Western leaders continue along the course they’ve been on in the post-Cold War period, they are likely to go down in history in much the same light as those sadly obtuse leaders who presided over the onset of World War I.

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In keeping with the tradition of Chinese data being fully Schrodingerized, not to mention completely goalseeked and fake, moments ago China reported that its GDP for the quarter which ended 15 days ago has not only been compiled and analyzed, but somehow once again it both beat and missed at the same time. It beat on a Year over Year basis rising 7.4%, just fractionally above the 7.3% expected, while at the same time it missed on a sequential basis with Q1 GDP growing 1.4% Q/Q, just below the 1.5% expected.

Some other Schrodingerian, and fake, data:

• Retail Sales beat at 12.2%, above the expected 12.1%, but sharply below the 13.6% in Q4
• Industrial Output missd at 8.8%, below the expected 9.0%, and also well below the 9.7% previously
• Fixed asset investment also slide from 19.6% at Q4 to just 17.6% as the capex boom is slowly grinding to a halt
• and finally, Real Estate development dipped from 19.8% to only 16.8%

In short: a substantial deterioration of the economy, one which was to be expected yet one which can be spun as either bullish thanks to the GDP “beat”, and negatively if the purpose is to make a case for more PBOC stimulus.

And now we look forward to seeing if the difference between the consolidate GDP and that spread by regions is more than the CNY1 trillion we have been used to as of late.

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The Florida Panthers finished this season with the 2nd lowest points total in the NHL and drew the 2nd lowest average attendance of 14,200 fans per home game. The team is losing $25 million annually. All of this is the exact opposite situation of the team’s owner – Vincent Viola of HFT firm Virtu Financial infamy. As Bloomberg reports, Viola, whose high-frequency trading firm plans to raise millions in an initial public offering next month, is seeking tax dollars to help cover the bills for the hockey team he bought six months ago. Viola asked lawmakers in South Florida’s Broward County to use $64 million in taxpayer funds for arena bond payments owed by the team. In addition to taking over bond payments, which would be made over the next 14 years, the team wants concessions that would cost county taxpayers another $14 million in the same period.

 

As Bloomberg reports, officials in Broward, which encompasses Fort Lauderdale on the Atlantic Coast, disagree on how to proceed, with some saying that if they don’t pick up the tab, the team may move and leave taxpayers with $225 million in debt and an empty arena.

“If we lose the Panthers and the arena operators, we would devalue our asset,” said Broward Mayor Barbara Sharief, referring to the $220 million BB&T Center arena near Fort Lauderdale. “The building could stay vacant for six months out of the year. That’s a significant loss.“

 

The value of the 20,000-seat arena would drop 70 percent if the Panthers fold or relocate, Sharief said. The arena would probably lose its concert promoter, Live Nation Entertainment Inc., and forfeit a $2 million annual state subsidy.

iola has been owner since September…

The team, in its current location since the 1998-99 season, was sold to Viola and Douglas Cifu, Virtu’s CEO, in September for $250 million, according to the South Florida Sun-Sentinel. Team CEO Rory Babich declined to comment.

 

The team is losing $25 million annually, according to a county review.

But everyone involves expects the taxpayer handout…

With more tax money, the Panthers could recruit better players, said Babich, the team CEO. The county could share the profits, he said.

 

In addition to taking over bond payments, which would be made over the next 14 years, the team wants concessions that would cost county taxpayers another $14 million in the same period.

 

Babich wouldn’t say whether the team would move if it doesn’t get a bigger subsidy. He said the team expects to reach a “satisfactory’’ resolution with Broward.

So the big question is – why does Viola need US taxpayer help when his firm (and his pocketbook) is exploding with holy grail cash? Or is that, in a nutshell, how one gets rich in this new normal… take the profits and let government take the downside.

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In all honesty, we were a little confused whether to call this Tuesday Humor or Tuesday Schizophrenia, because moments ago the biggest dove at the Fed, Minneapolis Fed’s one-time converted uberhawk Kocherlakota (who recall fired his two biggest hawkish opponents at his regional Fed) just came up with the most idiotic, and hence hilarious, thing a president of the one institution whose only job is to devalue the fiat currency of the host nation can say:

• KOCHERLAKOTA SEES ‘REAL EROSION’ OF PEOPLE’S PURCHASING POWER

Yep – the biggest dove in the Fed – the only person who disagreed with the Fed’s decision to continue tapering – is suddenly worried about the erosion in your purchasing power dear people. What nobility. What humanism.

But wait, there’s more.

Because within moments of uttering this epic phrase, Kocherlakota said this:

Kocherlakota: You see an asset price or land price growing at 10% per year. That can’t continue. #MFedQandA

— Minneapolis Fed (@MinneapolisFed) April 16, 2014

So according to the head of the Minneapolis Fed, the S&P, which rose at 30% last year, is in a bubble and due to pop? Thanks for the warning, chief, even though it is ironic considering it comes on the heels of this:

Kocherlakota: The ways in which low interest rates provide stimulus are greater than the impact on savings accounts. #MFedQandA

— Minneapolis Fed (@MinneapolisFed) April 16, 2014

Greater than the impact on savings accounts… and precisely equal to the impact on their E-trade accounts.

And we close with this rhetorical question posed by the Fed economist:

Question: What could the Fed be doing to help spur the economy? #MFedQandA

— Minneapolis Fed (@MinneapolisFed) April 16, 2014

Why shut itself down of course.

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As the second algo-crazy spike in stocks in 2 days draws to a close, it is perhaps worth considering BofAML’s Macneil Curry’s perspective on the S&P 500 – despite the potential for further near-term strength, equity gains are corrective and downside risk remain… or put a different way “sell the f##king rips.” Just as growthless-ly, Curry advises 5s30s flatteners in Treasuries as the slowing trend is set to continue.

 

US5s30s resumes its flattening trend.

US5s30s is resuming its flattening trend. The test and reversal from old channel support, now resistance at 196bps and coincident momentum unwind from oversold extremes says the flattening trend is resuming and that it has room to run.

REMEMBER, WE ARE IN A CYCLICAL (multi-year) flattening trend. Steepening is temporary and corrective. Our initial downside targets are seen to retracement support at 146bps, but eventually we look for a move to long term channel support at 57bps and eventually below.

Initiate UST 5s30s Flatteners at mkt (185.3bps) risk 197bps, target 143bps

ESM4 gains remain corrective.

Turning to equities, despite the potential for further near term strength, against a break above 1867.50/1872.53 (ESM4 and CASH) downside risks remain for the confluence of CASH SUPPORT between 1794/1763 (10m trendline and 200d avg).

 

Source: BofAML

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On the one year anniversary of the Boston Marathon Bombing (which oddly enough the NSA did not prevent, even before its expansive anti-terrorist exploits were revealed by Edward Snowden) it was practically unavoidable that there would be some echos of that tragic day. Sure enough as CBS reports, “the area near the finish line of the Boston Marathon was evacuated Tuesday night after two unattended backpacks were left at the finish line. Police tape has been put up around the photo bridge on Boylston Street. WBZ-TV photographers on scene say they saw a person with the backpack screaming “Boston Strong” before police cleared everyone from the area.”

Witnesses say the person was barefoot, wearing a long black veil and was acting strange. It is unclear whether or not the person was taken into custody.

 

Copley Station on the Green Line is closed while police investigate the bags.

 

One year ago, three people died, and more than 260 people were injured when two bombs exploded near the finish line of the marathon. Earlier in the day, Vice President Joe Biden joined survivors, and victim’s families for a moment of silence at 2:49 p.m., the same time the bombs exploded a year ago.

Below is a video of the suspicious person:

Moments later the bomb squad arrived.

Boston Police: 2 suspicious, unattended bags being investigated near the Boston Marathon finish line: http://ift.tt/1hJeGi6

— ABC News (@ABC) April 15, 2014

Bomb squad gearing up in Copley Square. #Boston #BostonStrong #BostonMarathon http://ift.tt/1hJeI9A

— Jay Gray (@jaygraymatters) April 15, 2014

While we suppose the all clear will be given promptly, should the situation escalate, we will update.

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A day after Putin called Obama to warn him that only the US president can prevent bloodshed in Ukraine – something which Obama failed at based on this morning’s reports out of east Ukraine – German Chancellor Angela Merkel had a follow up phone call with the Kremlin a few hours ago, in which Putin told her that “The sharp escalation of the conflict puts the country, in essence, on the verge of a civil war”.

From Itar-Tass:

President Vladimir Putin has had a telephone conversation with Chancellor Angela Merkel of the Federal Republic of Germany and discussed with her the situation in Ukraine, the Kremlin press service reports.

 

Russia’s Head of State pointed out , “The sharp escalation of the conflict puts the country, in essence, on the verge of a civil war“.

 

The leaders of the two countries accentuated the importance of talks in a quadripartite format (Russia, the European Union, the United States, and Ukraine), planned for April 17. “Hope has been expressed that the sides at the meeting in Geneva will manage to convey a clear message contributing to directing the situation into a peaceful channel,” a Kremlin press service official added.

 

The RF President also recalled the importance of stabilizing the economy of Ukraine and of ensuring deliveries and transit of Russian natural gas to Europe. This had been reiterated in his message, dated April 10, 2014, to the leaders of a number of European countries.

 

The telephone conversation was held on the initiative of the German side.

Considering the events from this morning which nearly resulted in the S&P plunging below 1800 only to be “redeemed” by the “bad news” that the Japanese economy is about to stumble yet again, leading algos to believe that more BOJ QE is imminent and sending the S&P surging by over 30 points in the span of a few hours, this is hardly surprising.

What is more surprising, is that as we reported earlier, the very same Germany, through its RWE AG utility, announced it would supply Ukraine with nat gas in 2014 since Gazprom is adamant on no longer providing the troubled country with the precious commodity in the absence of payment (which Ukraine can’t afford). WSJ reports:

German utility RWE AG said it agreed to supply Ukraine with natural gas this year, as the troubled country seeks to reduce its reliance on gas imported from Russia.

 

RWE is the first European energy company to agree to supply gas to Ukraine since the political crisis there threatened the former Soviet republic’s supplies from Russia. But the deal underscores the extent to which Europe, now scrambling to shore up Ukraine, also depends on Russian gas.

The paradox of course, is that Germany itself is reliant on Russian natgas exports for about a third of its needs, which means that the gas Germany “sells” to Ukraine will in fact originate in the Ukraine! “RWE declined to estimate how much of its gas deliveries to Ukraine’s state-owned energy company Naftogaz will likely stem from Russia or to provide details to the agreement, such as volumes, price or the duration of the shipments.”

What the deal would do, is to allow Ukraine to purchase nat gas at lower prices than the 81% price surge Gazprom is demanding from Ukraine in the Kremlin’s implicit halt of gas supplies to the intransigent ex-USSR republic. As a result, the deal “could at least partially buffer Ukraine from price increases imposed by Russia’s OAO Gazprom—which currently supplies the vast majority of the country’s gas imports—and the state-owned energy giant’s recent threats to turn off the spigot. RWE said it would begin the gas deliveries via Poland immediately, adding only that the gas would be supplied at European market prices, including delivery costs.”

There are other complications:

It isn’t clear how much gas the RWE deal will enable to flow to Ukraine. Under a 2012 deal between the German utility and Ukraine, the German company could ship up to 10 billion cubic meters of gas to Ukraine each year—the precise amount is agreed upon annually. However, RWE currently can’t ship the maximum allowable amount because of capacity constraints, a company spokesman said. RWE shipped around one billion cubic meters of gas to Ukraine last year.

Ukraine consumed around 50 billion cubic meters of gas in 2013, of which 60% came from Russia, according to its government. and most of the rest was produced domestically. Gazprom earlier this month raised gas prices for Ukraine by 81%, saying that Naftogaz owed it around $2.2 billion. Officials in Moscow later warned there could be gas-supply disruptions if Ukraine’s unpaid gas bills weren’t resolved.

Some analysts caution that European countries won’t be able to supply Ukraine with significant quantities of gas until pipelines that carry gas into the country are upgraded.

Central and Eastern Europe’s gas-pipeline system was built to ship large quantities of Russian gas westward. After a price dispute in 2009 prompted Gazprom to temporarily halt gas supplies to Ukraine, the European Union looked into upgrading pipelines to allow for reverse flows of gas back into Ukraine. The EU currently receives around 30% of its annual gas demand from Russia, of which around a half is delivered via pipelines that run through Ukraine.

But reverse-flow capacity into Ukraine is still limited. In 2013, around 2 billion cubic meters of gas were shipped to Ukraine via Poland and Hungary, according to the European Commission.

Finally, even this attempt to keep Ukraine plugged in, is likely merely for optical purposes:

Jonathan Stern, senior research fellow at the Oxford Institute for Energy Studies, said Russian gas supplies to Ukraine would likely remain indispensable near-term.

“I expect that raising reverse-flow capacities to around 5 bcm this year should be possible, but that would still leave a large gap to meet all of Ukraine’s gas needs,” Mr. Stern said.

Of course Putin knows this. He also knows that all this deal really means is that instead of Ukraine paying Gazprom it will now be up to Germany to foot the bill for Ukraine token nat gas supply, which in the grand scheme of things, will hardly be sufficient to move the needle.

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