Forex Blog

April 17, 2014

Putin Gives Ukraine A Month To Settle Energy Debts

Russian President Vladimir Putin warned of possible disruption to Europe’s gas supply on Thursday, as the U.S. confirmed it would send additional non-lethal military support to Ukraine.

Speaking at an annual televised question-and-answer session in Moscow, Putin said Russia would give Ukraine a month to pay off its gas debts, but would then switch to a “complicated” pre-payment scheme which could disrupt supply.

Gas giant Gazprom, in which the Kremlin has a majority stake, claims Ukraine owes it more than $2.2 billion.

“It’s a complicated settlement and might lead to disruption of supply of gas to our European consumers. We can cut it off right now. But we will wait another month,” Putin said.

The unfolding dispute between Ukraine and Russia has led to fears of a disruptions in gas supply to Europe, given that Russia supplies around a third of the continent’s natural gas, and that some of that supply is delivered through pipelines running through Ukraine.

via CNBC

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Indian Elections Boost Stock Market And Rupee

Indian markets are riding high as investors bet that an election and new administration will cure some of the country’s economic ills.
Mumbai’s benchmark Sensex index has trounced its Asian peers in recent months, hitting a record high last week and gaining 7% since the start of the year. The rupee has strengthened too, clawing its way back from a dismal performance in 2013.

Much of the optimism hinges on forecasts that India’s 815 million voters will make Bharatiya Janata Party candidate Narendra Modi the next prime minister.
Victory for a Modi-led coalition would end the Congress Party’s dominance, and create an opening for a new government to implement economic reforms.

Analysts say India would benefit greatly from changes to its tax code, a reduction in excessive bureaucracy and more efficient agricultural policies. Momentum on these long-promised reforms stalled under the leadership of the Congress Party.

India’s potential for growth was once mentioned in the same breath as that of China. But the world’s second most populous nation and biggest democracy has failed to deliver and its economy is just a fifth the size of its Asian rival.

via CNN

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International Diplomats Call For Illegal Armed Groups To Be Disarmed

Filed under: OANDA News — Tags: , , , , , , , , , — admin @ 5:27 pm

Diplomats meeting for emergency talks on the crisis in Ukraine issued a joint statement Thursday aimed at de-escalating the tensions and ensuring the security of all Ukrainians.
It calls for all illegal armed groups to be disarmed, all illegally seized buildings to be returned to legitimate owners, and for all occupied public spaces to be vacated.
The statement followed talks lasting several hours between U.S. Secretary of State John Kerry, Russian Foreign Minister Sergey Lavrov, his acting Ukrainian counterpart Andriy Deshchytsia and EU foreign policy chief Catherine Ashton.
Kerry said the sides had worked hard to narrow the differences between them.
Lavrov, giving a news conference, echoed the statement, as well as stressing the need for Russian speakers in Ukraine to be protected from discrimination.
The emergency talks in Geneva were called in the hope of resolving a deepening crisis that has seen armed pro-Russian protesters seize swaths of Ukraine.
The unrest in the restive east, which shares a border with Russia, has been spiraling so fast it has left diplomacy behind in the dust.

via CNN

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April 14, 2014

US10Y – Yields Falling But Long Term Demand Expected To Fall

US10Y_140414W1

US yields have gone down in recent weeks, pulling away from the fabled 3.00% line in the sand due to a myriad of reasons.

On the economic front, we have weaker than expected US NFP numbers, while minutes of latest FOMC meeting reflected a more dovish Fed than expected, favoring higher bond prices.

Social political factors aren’t encouraging either – Ukraine has just declared they will be rolling out a “large-scale antiterrorist operation” in response to the armed protests sprouting across the eastern region which borders Russia. Unlike the much more peaceful referendum seen in Crimea, Ukraine seems bent on using military efforts to thwart current uprising with President Olekasndr Turchynov saying that they will prevent “the repetition of the Crimean scenario” during a televised address on Sunday. Unfortunately it seems that Russia is going for tic for tac, with reports suggesting that up to 40,000 Russian troops have been amassed along Ukraine borders ready to march in if necessary. This may all turn up to be a hoax, but it is genuine enough that U.N. security council has called for an emergency meeting to address the situation. With the sound of war drumming nearer, it is no surprise that safe haven flow has been pumping commodities such as Gold and Oil higher, while traders are flocking to USD and US Treasuries for safe keeping.

Where does that bring us? Implied yield is currently standing at just under 2.62% while 10Y short-dated Futures are just under 126.0 round figure. From a price action perspective, staying below 126.0 suggest that long-term bearish trend remains in play since prices is staying below the descending trendline and perhaps more importantly below the 2014 high. Looking for a relative yield perspective, 2.62% is also not really that low considering that we were trading at 1.63% just under a year ago. Furthermore, there is also a “support” level seen at the 2.5% implied yield level (not visible from chart), suggesting that trend has not reversed.

This makes sense because all the factors mentioned earlier are all in the short-term. Even if there is a war breaking out, it is going to be localized between the eastern European front. Similarly, even though US economic numbers have been below expectations, the recovery narrative remains intact and we should be able to see continued tapering of Quantitative Easing and eventual higher rates to push Treasuries yields up. It is all simple mathematics really. Can the increased demand from safe haven flow be enough to offset the reduction in Fed’s purchases? In the short run it is certainly possible, but it is unlikely that this can continue indefinitely. As such, demand for Treasuries will eventually fall and yields will climb closer to 3% once again.

More Links:
WTI Crude – Bullish Momentum Stalling At 104.0 Resistance
Gold Technicals – Marching Towards 1,330 On Sound Of Ukraine Unrest
Week In FX Europe – BoE To Judge Slack Before Hike

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April 11, 2014

Putin Pressures West on $2.2 Billion Ukrainian Energy Debt

In a letter to the leaders of 18 European countries, Putinmade clear that his patience would run out over Kiev’s $2.2 billion gas debt to Russia unless a solution could be brokered urgently.

Russia has nearly doubled the gas price it charges Ukraine, whose economy is in crisis, since pro-Moscow President Viktor Yanukovich was overthrown two months ago. Russia then annexed the Ukrainian region ofCrimea, provoking the biggest confrontation with the West since the Cold War.

Putin said Russian exporter Gazprom would demand advance payment for gas supplies to Ukraine and “in the event of further violation of the conditions of payment will completely or partially cease gas deliveries”.

That could have knock-on effects for European Union countries, much of whose Russian gas flows in pipelines across Ukraine.

“We fully realize that this increases the risk of (Ukraine) siphoning off natural gas passing through Ukraine’s territory and heading to European consumers,”the letter said.

Russia meets 30 percent of Europe’s natural gas demand and half of this goes through Ukraine.

The United States accused Moscow of using its vast energy reserves to pressure the former Soviet republic. “We condemn Russia’s efforts to use energy as a tool of coercion against Ukraine,” State Department spokeswoman Jen Psaki said.

via CNBC

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April 9, 2014

Greek Bond Auction Welcomes 4 Year Low Yields

Greece is set to return to the bond markets for the first time in four years, a key signal that its crisis-hit economy is welcomed once more by investors.

“Greece is back,” analysts at Credit Suisse proclaimed. After a grueling austerity program under the terms of its two bailouts international lenders, and possibly more importantly European Central Bank President Mario Draghi’s pledge to do “whatever it takes” to save the euro, Greece is no longer talked of as the first country likely to leave the single currency.

The Greek finance ministry confirmed in a news release on Wednesday that it would launch a five-year bond in the “near future”. It is seen auctioning around 2 billion euro ($2.78 billion) worth of debt.

The yield is expected to be around the 5.4 percent mark, a better investment return than the current 4.79 percent, as authorities want to offer a little sweetener to investors, according to CNBC sources in Athens.

Ahead of the auction, yields for 10-year Greek bonds fell to 5.951 percent on Wednesday–their first time below 6 percent in four years.

In comparison, Portuguese 10-year bonds were yielding 5.889 percent. 10-year German bunds yielded 1.583 percent and U.S. Treasurys yielded 2.7134 percent.

via CNBC

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April 7, 2014

Fed’s Bullard Denies Summers Global Coordination Strategy

The global economy would see little benefit if the world’s central bankers coordinated monetary policy, a top Federal Reserve official said on Monday in defense of America’s easy money stance.

To fight a recession and nurse the U.S. economy back to health, the Fed has held short-term interest rates near zero since 2008 while printing trillions of dollars to buy up bonds.

This strategy has provoked concern among the world’s central banks, particularly in developing economies where some policymakers worry Washington’s exotic stimulus programs are destabilizing financial markets. The Fed’s signal last year that it would soon begin trimming bond purchases triggered sell-offs in global financial markets, although reaction to the actual winding down of the purchases has been more modest.

India’s central bank chief has argued that the world’s central banks should coordinate their policies, but St. Louis Federal Reserve Bank President James Bullard weighed in against this strategy.

“Possible gains are small, and it would be hard to get the world’s policymakers to play the cooperative (approach),” Bullard said in prepared remarks for a business conference.

Bullard said he thought the Fed’s aggressive bond buying and its pledges to keep interest rates low were effective policies for boosting U.S. economic growth. Coordinating policies globally would only make sense if this were not the case, he said.

Speaking to journalists after his presentation, Bullard said the Fed must keep in mind that any changes in its plan to wind down bond purchases could roil markets.

“Any change in the … program has fairly large effects on the financial markets,” he said. “For that reason we have to be careful about changing the tapering program.”

via Reuters

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April 3, 2014

ECB Keeps European Rates on Hold As Expected

The European Central Bank (ECB) has kept its benchmark interest rate at a record low of 0.25%.

It comes despite the fact that inflation in the currency bloc fell to a five year low in March.

Eurozone interest rates have remained unchanged since November 2013, when the bank said it expected “a prolonged period of low inflation”.

This week figures showed inflation continued to fall in March to 0.5%, well below the ECB’s target of 2%.

March was the 6th month that inflation in the eurzone was trapped in what ECB President Mario Draghi has called “the danger zone” below 1%.

It was also the third month in row in which inflation fell.

The fear attached to lower inflation is it could harm the eurozone’s nascent economic recovery, weakening consumer demand for goods and services as household’s put off spending believing prices will continue to fall.

Low inflation also means that governments and businesses find it more difficult to repay their debts.

via BBC

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April 2, 2014

Pros and Cons of ECB Rate Cut

It all sounds so familiar: yet another low inflation shock in the euro zone increases pressure on the European Central Bank (ECB) to act.

Some economists have been calling on the ECB to pull the trigger at every month since it last cut interest rates in November. But they remain divided as to whether ECB President Mario Draghi will act at this Thursday’s monetary policy meeting – or indeed at any time in the near future.

Click here to look at arguments for and against the ECB intervening

CNBC

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April 1, 2014

ECB Likely To Hold Policy But Deflation Fears Pressuring CB

The European Central Bank is not expected to announce any new measures on Thursday to boost the euro zone economy, although inflation dropping to close to zero could well prompt active discussion about stimulus.

Negative deposit rates – charging banks to deposit at the ECB – and some form of asset-buying program may lie further out.

Euro zone annual inflation ticked down to 0.5 percent in March, its lowest since the economy was deep in recession in 2009, and its sixth month in what ECB President Mario Draghi has called “the danger zone” below 1 percent.

The fall in inflation was slightly sharper than expected, and gave ammunition to those on the ECB’S Governing Council who want do more to stem the threat of deflation.

However March’s inflation reading is not seen prompting policy action right away, as it is not much weaker than the ECB’s forecast last month and was driven by the kind of softer food and energy prices the bank usually judges as temporary.

“Did the inflation outlook deteriorate compared to last month? I don’t think so,” said Anders Svendsen, chief analyst at Nordea. “It would be odd to do something now that they could have done last month and chose not to.”

The ECB refrained from taking further action in March despite forecasting inflation would undershoot its target of below but close to 2 percent well into 2016, which disappointed the market and pushed up the euro exchange rate close to $1.40, its strongest level since October 2011.

via Reuters

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