Putin rebuffs Obama as Ukraine crisis escalates -
(Reuters) - President Vladimir Putin rebuffed a warning from U.S. President Barack Obama over Moscow’s military intervention in Crimea, saying on Friday that Russia could not ignore calls for help from Russian speakers in Ukraine.
After an hour-long telephone call, Putin said in a statement that Moscow and Washington were still far apart on the situation in the former Soviet republic, where he said the new authorities had taken “absolutely illegitimate decisions on the eastern, southeastern and Crimea regions.
"Russia cannot ignore calls for help and it acts accordingly, in full compliance with international law," Putin said.
Putin denies that the forces with no national insignia that are surrounding Ukrainian troops in their bases are under Moscow’s command, although their vehicles have Russian military plates. The West has ridiculed his assertion.
The most serious east-west confrontation since the end of the Cold War - resulting from the overthrow last month of President Viktor Yanukovich after violent protests in Kiev - escalated on Thursday when Crimea’s parliament, dominated by ethnic Russians, voted to join Russia. The region’s government set a referendum for March 16 - in just nine days’ time.
European Union leaders and Obama denounced the referendum as illegitimate, saying it would violate Ukraine’s constitution.
Obama announced the first sanctions against Russia on Thursday since the start of the crisis, ordering visa bans and asset freezes against so far unidentified people deemed responsible for threatening Ukraine’s sovereignty. Russia warned that it would retaliate against any sanctions.
Japan endorsed the Western position that the actions of Russia, whose forces have seized control of the Crimean peninsula, constitute “a threat to international peace and security”, after Obama spoke to Prime Minister Shinzo Abe.
China, often a Russian ally in blocking Western moves in the U.N. Security Council, was more cautious, saying that economic sanctions were not the best way to solve the crisis and avoiding comment on the legality of a Crimean referendum on secession.
The EU, Russia’s biggest economic partner and energy customer, adopted a three-stage plan to try to force a negotiated solution but stopped short of immediate sanctions.
The Russian Foreign Ministry responded angrily on Friday, calling the EU decision to freeze talks on visa-free travel and on a broad new pact governing Russia-EU ties “extremely unconstructive”.
Senior Ukrainian opposition politician Yulia Tymoshenko, freed from prison after Yanukovich’s ouster, met German Chancellor Angela Merkel in Dublin and appealed for immediate EU sanctions against Russia, warning that Crimea might otherwise slide into a guerrilla war.
Brussels and Washington rushed to strengthen the new authorities in economically shattered Ukraine, announcing both political and financial assistance. The regional director of the International Monetary Fund said talks with Kiev on a loan agreement were going well and praised the new government’s openness to economic reform and transparency.
The European Commission has said Ukraine could receive up to 11 billion euros ($15 billion) in the next couple of years provided it reaches agreement with the IMF, which requires painful economic reforms like ending gas subsidies.
Promises of billions of dollars in Western aid for the Kiev government, and the perception that Russian troops are not likely to go beyond Crimea into other parts of Ukraine, have helped reverse a rout in the local hryvnia currency.
Russian gas monopoly Gazprom said Ukraine had not paid its $440 million gas bill for February, bringing its arrears to $1.89 billion and hinted it could turn off the taps as it did in 2009, when a halt in Russian deliveries to Ukraine reduced supplies to Europe during a cold snap.
In Moscow, a huge crowd gathered near the Kremlin at a government-sanctioned rally and concert billed as being “in support of the Crimean people”.
Pop stars took to the stage and demonstrators held signs with slogans such as “Crimea is Russian land”, “We don’t trade our people for money” and “We believe in Putin”.
Ukrainian Prime Minister Arseny Yatseniuk said no one in the civilized world would recognize the result of the “so-called referendum” in Crimea.
He repeated Kiev’s willingness to negotiate with Russia if Moscow pulls its additional troops out of Crimea and said he had requested a telephone call with Russian Prime Minister Dmitry Medvedev.
But Putin’s spokesman Dmitry Peskov ridiculed calls for Russia to join an international “contact group” with Ukraine proposed by the West to negotiate an end to the crisis, saying they “make us smile”, Russian news agencies reported.
Despite the Kremlin’s tough words, demonstrators who have remained encamped in Kiev’s central Independence Square to defend the revolution that ousted Yanukovich said they did not believe Crimea would be allowed to secede.
Alexander Zaporozhets, 40, from central Ukraine’s Kirovograd region, put his faith in international pressure.
"I don’t think the Russians will be allowed to take Crimea from us: you can’t behave like that to an independent state. We have the support of the whole world. But I think we are losing time. While the Russians are preparing, we are just talking."
Ukrainian television was switched off in Crimea on Thursday and replaced with Russian state channels. The streets largely belong to people who support Moscow’s rule, some of whom have become increasingly aggressive in the past week, harassing journalists and occasional pro-Kiev protesters.
Part of the Crimea’s 2 million population opposes Moscow’s rule, including members of the region’s ethnic Russian majority. The last time Crimeans were asked, in 1991, they voted narrowly for independence along with the rest of Ukraine.
"This announcement that we are already part of Russia provokes nothing but tears," said Tatyana, 41, an ethnic Russian. "With all these soldiers here, it is like we are living in a zoo. Everyone fully understands this is an occupation." - (Reuters)
Fed's Dudley flags easy money now, rate rise around mid-2015 -
(Reuters) - The Federal Reserve is not about to back off its highly accommodative policy, though investor predictions of a rate rise by midway through next year are reasonable, an influential U.S. central banker said on Friday.
New York Fed President William Dudley outlined some bright spots in the long U.S. recovery from recession, calling U.S. economic prospects “reasonably favorable.”
But Dudley, a key Fed decision-maker alongside Chair Janet Yellen, stressed that the labor market is still hobbled…
Dudley did not comment specifically on the Fed’s bond-buying policy. And while his comments on the economy were relatively upbeat, his still-dovish stance on policy reinforces the notion that the Fed is nowhere near ready to tighten after more than five years of near-zero interest rates.
The market generally expects the Fed to raise rates “sometime toward the middle of 2015,” he said at Brooklyn College. “I think those are a very reasonable set of expectations based on what we know today, and our economic forecasts.”
According to forecasts published in December, 12 of the Fed’s 17 policymakers expect to start to tighten policy in 2015. Two officials predicted the move would come this year, and three said not until 2016.
Dudley noted that most market participants who closely follow the Fed are expecting a rate rise when the unemployment rate falls to around 6 percent.
Dudley, on a tour of the New York City borough, predicted sustained U.S. growth above 2.25 percent on the horizon, enough to boost the labor market. But he warned of “substantial underutilization” of both labor and capital resources.
"This implies, in turn, that the current, highly-accommodative stance of monetary policy will remain appropriate for a considerable time to come," Dudley told a small library auditorium of students and staff at the college.
The government report showed on Friday that the portion of Americans who either have a job or are looking for work held steady, despite a downward trend in this so-called labor force participation rate.
Dudley said that while the aging of the population is playing a role in the drop, he expects more Americans to return to the workforce. “The decline of the unemployment rate significantly overstates the degree of improvement in the labor market,” he said.
"Exactly where it’s going is not clear at this point," Dudley said. "Obviously we hope that cooler heads prevail." - (Reuters)
Rising output heralds early spring for German economy -
Frankfurt — Spring appears to be arriving early for the German economy as industrial production picked up speed in January, official data showed on Friday.
Industrial output expanded by 0.8 percent in January, after inching up by 0.1 percent in December, the economy ministry calculated in preliminary data.
Economic activity jumped by 4.4 percent in the construction sector, 1.1 percent in the energy sector and 0.3 percent in the manufacturing sector, the ministry said. (RCS: MoM basis)
Analysts were cheered by the better-than-expected numbers, particularly after factory orders also surprised to the upside in January.
"German ‘hard’ data confirm what soft indicators like the Ifo index had suggested: Germany’s economy kicked off 2014 on a very strong note," said Berenberg Bank economist Christian Schulz.
The expert said the mild winter weather probably played a role, as could be seen in the surge in construction output.
"The rude health of Germany’s domestic economy should enable Germany, and by extension the eurozone which benefits from German imports, to weather any potential turbulences emanating from the Ukraine crisis," Schulz said.
Capital Economics economist Jonathan Loynes said the new data “provide some hope that the economy’s main growth engine is starting to pick up some revs.”
The numbers “provide a solid base for the first quarter,” he said, but added: “There are reasons not to get too excited.”
The January data were helped by a weather-related boost to construction output “and we still think that the strong euro could temper the recovery even in Germany’s competitive industrial sector,” Loynes said.
ING DiBa economist Carsten Brzeski said German industrial production “returned as an important growth engine in January. This number gets even better when taking into account that December data was revised upwards from a 0.6 percent drop to a 0.1 percent increase.”
Looking ahead, the German economy “should gain further momentum,” Brzeski said.
"With the mild winter weather, the construction sector should be an important growth driver in the first quarter. Whether it is by looking through the window or by analysing economic data, this year, springtime seems to come early to Germany." Brzeski concluded. - (AP)
On a YoY basis, IP just hit its highest since late 2011 at 5%.
U.S. gains 175,000 jobs in February Economic Report -
The U.S. economy generated 175,000 jobs in February despite harsh winter weather, but the unemployment rate ticked up for the first time in 14 months, the government reported Friday.
The steady pace of hiring last month — it was the biggest increase in three months — suggests the economy has not slowed as much as a recent spate of indicators appear to indicate. The unemployment rate, for example, edged up to 6.7% from 6.6% because more people entered the labor force in search of jobs. That’s usually a sign that workers think more jobs are available.
Yet economists say it may take another month or two to get a good read on the economy’s health because of unusually cold and snowy weather in the early part of 2014.
In February, hiring was strongest in professional services, education and bars and restaurants, the Labor Department said.
Retailers and information-service companies cut jobs.
Average hourly wages, meanwhile, increased 9 cents to $24.31, but the average workweek fell by 0.1 hour to 34.2 hours in a negative sign.
The civilian participation rate was unchanged at 63.0%.
Employment gains for January and December, meanwhile, were revised up by a combined 25,000. The number of new jobs created in January was raised to 129,000 from 113,000, while December’s figure was upped to 84,000 from 75,000. - (Marketwatch)
Overall a good report and better than expectations. Equities are up. The upward revisions were rather “blah” but a rise in the unemployment rate takes away the fear of an overheating in the labor market. This means that inflation may stayed subdued despite improving payroll numbers. Equity markets right now see this as a good development.
Shanghai Chaori defaults on bond interest payments -
BEIJING—A Chinese solar-equipment maker on Friday failed to meet interest payments on a bond, according to a company official there, becoming China’s first domestic corporate bond default.
The default, though small in size, marks the first time a Chinese company has defaulted on a bond traded in the mainland, according to Moody’s Investors Service.
So far, the Chinese government and state-owned banks have largely kept risky borrowers afloat by providing bailouts or debt extensions, keeping borrowing costs low for companies with high debt.
That has led many investors to flock to Chinese corporate bonds on the belief they have an implicit guarantee, helping to fuel growth. Total corporate bonds outstanding rose more than tenfold to 8.7 trillion yuan at the end of January from the end of 2007, allowing even weak borrowers to tap funds at relatively low rates.
The default comes amid broader concerns about the impact of China’s slowdown in economic growth on the rising amount of debt among local government-connected financing vehicles as well as among some Chinese companies. Standard & Poor’s estimates China’s corporate debt could hit $13.8 trillion in 2014, surpassing that of the U.S. as the largest in the world.
On Thursday, Mr. Liu said the company plans to pay just four million yuan in interest owed on its one billion yuan bond on Friday. “We will try our best to pay bondholders as soon as possible but the company also has other debts,” he said. — (WSJ)
New Jobless Claims Fall to a Three-Month Low -
The number of people seeking unemployment benefits dropped by 26,000 last week, to a seasonally adjusted 323,000, the lowest level in three months as layoffs remain at prerecession levels.
The Labor Department said on Thursday that the four-week average of applications, a less volatile measure, fell slightly to a seasonally adjusted 336,500. That indicates that firms are cutting few jobs and anticipate steady economic growth despite the winter slowdown. Applications are a rough proxy for layoffs.
Economists have estimated that 145,000 jobs were added last month. But there are signs that this forecast might be optimistic after a pair of lackluster reports released Wednesday suggested that winter storms hampered hiring in February.
A survey by the payroll processor ADP said private businesses added just 139,000 jobs last month. But that figure does not include state, local and federal government workers, unlike the coming Labor Department report. Most economists predict it will show that governments shed workers in February.
And a survey of service companies by the Institute for Supply Management found that its measure for hiring plunged 8.9 percentage points to 47.5, evidence that many companies let go of employees in February. Any reading above 50 indicates expansion in the group’s index. — (NYT)
The ISM Services employment sub-indicator caught my eye. Also notable is that the ISM manufacturing survey’s sub-index is at its lowest since mid last year. Definitely a lot of conflict reports. For example, Rasmussen’s employment indicator just rose to a 7-month high. Open to many interpretations ;-).
Given new market highs, a fast trigger-finger tomorrow on the futures market morning could net you some short-term gains if the report tomorrow disappoints significantly. Lots of people on the bull bandwagon (ie on the same side of the trade). 7:30 am!!!
Dudley Sees High Threshold for Change in Pace of Tapering (2) -
William Dudley, president of the Federal Reserve Bank of New York, said that while harsh weather will slow growth during the first quarter, it won’t harm the economy enough to merit slowing the tapering of bond purchases.
The winter weather doesn’t prompt “a fundamental change in the outlook,” and “does not rise to the level where you change the taper path,” Dudley said at an event in New York today organized by the Wall Street Journal. “The threshold is pretty high to change it.”
“The economy should do better in 2014 than 2013,” Dudley said, predicting growth of about 3 percent. “The area of question” is the weather, which has been making analyzing economic data “more difficult” and will “depress economic activity” during the beginning of the year.
“As we get into the spring, we’ll see some of these weather effects dissipate,” he said.
Philadelphia Fed President Charles Plosser predicted the U.S. economy will expand 3 percent this year even after the harsh winter.
“I believe that weakness largely reflects the severe winter weather rather than a frozen recovery,” Plosser said today in a speech in London. “So, we must be wary of attaching too much significance to the latest numbers.”
“Unseasonably cold weather has played some role,” Yellen said in reply to a question during Feb. 27 testimony to a Senate committee. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”
The Fed should move away from its pledge to consider raising interest rates when unemployment falls below 6.5 percent given it’s “already a little bit obsolete,” Dudley said. Joblessness fell to 6.6 percent in January.
Dudley said he prefers a “qualitative” approach to guidance about the path of interest rates.
“We’re going to have to look at a broad set of labor-market conditions rather than one single indicator,” Dudley said.
The Fed should talk more about what happens after the first interest-rate increase, not just the timing of “liftoff,” Dudley said. Increases in borrowing costs will be “relatively gradual” because of the “persistent headwinds” to U.S. economic growth, he said.
“When you look at the U.S. today, I don’t really see much excess in terms of things that worry me about financial stability,” Dudley said. Still, there are some areas that may be overvalued, such as biotechnology stocks, leveraged loans and farmland, he said. — (Bloomberg)
Germany Factory Orders up More Than Expected -
German factory orders rebounded more than expected in January, driven by demand from outside the 18 countries using the euro.
Domestic orders increased 1.6 percent, while foreign orders overall rose 1 percent. Non-eurozone orders rose 7.2 percent, but orders from within the bloc dropped 8.8 percent.
ING economist Carsten Brzeski says the numbers send two important messages — that the near-term looks positive with industrial production gaining momentum, but that in the long term Germany needs greater domestic demand. - (abcnews.com)
Important to note the dichotomy between euro and non-euro orders.
Hollande gets boost from quarterly French jobs data, but trend remains weak -
PARIS—French President François Hollande got an unexpected boost Thursday from data showing the unemployment rate began to fall at the end of last year.
The quarterly publication from statistics agency Insee came as a surprise because it is at odds with a separate monthly publication which showed the number of registered job seekers kept rising to reach a new high in January. Those monthly figures had prompted ministers to drop Mr. Hollande’s pledge to “invert the unemployment curve” last year.
The data come as Mr. Hollande struggles on nearly every other front. Economic growth is accelerating only slowly after two years of stagnation, the European Unionhas warned that France is falling far behind on its deficit reduction plans, and the president’s popularity has sunk to new lows with local elections just weeks away.
At the turn of the year, Mr. Hollande fought back, promising to forge a pact with business to cut taxes on labor in the hope that would spur investment and recruitment. He secured an initial victory on Wednesday when some labor unions and business groups signed off on plans for companies to make commitments on jobs in exchange for the tax cuts.
Additional tax cuts won’t come in until next year and the promise of a pact has so far failed to translate into the desired confidence boost.
Only 17% of French people are confident Mr. Hollande can resolve France’s problems, a new low for the socialist leader, according to a TNS Sofres’ poll of 1,000 people between Feb. 27 and March 3.
Analysts warned Mr. Hollande will struggle to use the unemployment numbers as a confidence boost as the slight fall in the rate is due mainly to government-sponsored contracts for young people rather than an economic recovery.
"This is a half-victory for François Hollande," said ING economist Julien Manceaux.
The apparent divergence between the quarterly statistics and the monthly data also tempers the boost for the French president.
The outlook for the trend remains bleak: the European Commission recently forecast unemployment will be stuck at high levels through this year and 2015. — (WSJ)
Here’s the bearish spin on the news. Overall, a wash.
French Unemployment Drops in Unexpected Victory for Hollande -
France’s unemployment rate fell in the first quarter, handing an unexpected victory to President Francois Hollande, who is trying to revive the nation’s economy.
The unemployment rate dropped to 10.2 percent in the fourth quarter from 10.3 percent, national statistics office Insee said in an e-mailed statement. Economists had expected an increase, according to the median of six forecasts gathered by Bloomberg News.
The first decline in unemployment since Hollande came to power in May 2012 bolsters the Socialist president as he seeks to convince his own lawmakers to back a plan to trim payroll taxes to strengthen French competitiveness. France’s main business lobbies and three unions agreed yesterday to back the president’s plan, labeled “the responsibility pact.”
“The main thing is that unemployment has dropped, even if that drop is slight,” Agriculture Minister Stephane Le Foll said today on I-tele. “This should encourage us to stick to our policies. The French economy is re-starting and we need to support it.” — (Bloomberg)
UPDATE 1-Australia economy on a rising tide as spending, exports swell -
SYDNEY, March 6 (Reuters) - Australian retail sales surged by the most in almost a year in January and exports jumped to record highs, clear evidence the resource-rich economyis stepping up a gear even as a boom in mining investment cools.
Likewise the country’s A$1.4 billion ($1.26 billion) trade surplus was the largest in almost three years as exports climbed 3.7 percent and dwarfed analyst estimates of A$400 million.
"People are choosing to spend more borrow more and save less, and that’s all too the good," said Michael Blythe, chief economist at Commonwealth Bank of Australia.
"That’s a key transmission mechanism of monetary policy and it shows the stimulus is working," he added. "The next move in rates is now likely to be up, albeit not until late this year."
The revival in retail spending was especially important as the A$270 billion retail sector accounts for 17 percent of Australia’s A$1.5 trillion in annual gross domestic product (GDP) and is the second-biggest employer after the health industry, with 10 percent of all jobs.
Indeed, it was a revival in consumption and a sustained surge in resource exports that lifted Australia’s economic growth to a stronger-than-expected 2.8 percent in the final quarter of 2013, the fastest pace in a year.
Exports continued their stellar run in January to hit a record A$29.8 billion, with farm goods up 5 percent and metal ores such as iron ore rising 3 percent.
Export growth for the year to January accelerated to 20 percent, the fastest in almost three years, as the hundreds of billions spent on mining projects turns into actual output. — (Reuters)
Fisher warns Fed's bond buying could be distorting U.S. financial markets -
(Reuters) - A U.S. Federal Reserve policymaker who has long criticized its bond-buying stimulus said on Wednesday the program has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking.
"There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive," he said of the asset purchases, which are sometimes called QE.
Fisher, a voter on U.S. monetary policy this year, also praised Mexico’s moves to stimulate growth in the wake of the global recession. As for the United States, he repeated criticisms that the government has failed to take advantage of the five years of easy Fed money, missing its opportunity to restructure debt and to reform entitlements and regulations.
"I do think we have had some short-term weather impact but that can turn around very quickly," Fisher said, adding that warmer temperatures would boost consumption and industry.
Fisher, an outspoken policy hawk, pointed to soaring margin debt and the narrow spreads between corporate and Treasury debt as areas of concern.
In the stock markets, he said price-to-projected-earnings, price-to-sales ratios, and market capitalization relative to GDP are all at “eye-popping levels not seen since the dot-com boom” of the late 1990s.
Fisher said that while the Fed has no “clear plan” for draining some of the $2.5 trillion in reserves that have built up at banks, he was confident the Fed would find a “practicable” way to normalize its balance sheet and avoid inflation. — (Reuters)
Weather obscures economic conditions: Beige Book Economic Report -
In sector after sector and region after region, the weather played havoc on conditions, the report said. There were 119 separate mentions of the word “weather” in the Beige Book.
The assessment is not likely to stop the Fed from continuing its steady reduction in monthly asset purchases.
Fed Chairwoman Janet Yellen said it might be “months” before the Fed gets a good reading of economic conditions.
The Beige Book does “reinforce our bias, and that at the Fed, that the slowdown in economic activity is short-lived,” said Eric Green, global head of rates, foreign-exchange, and commodity research at TD Securities.
The Beige Book said that eight of the 12 Fed districts reported that economic conditions continued to expand though Feb. 24.
Weather impacted retail sales and manufacturing.
Not all of its effects were negative: many districts reported energy production was rising on increased demand. — (Marketwatch)
U.S. ISM non-manufacturing PMI falls to 43-month low of 51.6 in February -
U.S. ISM non-manufacturing PMI falls to 43-month low of 51.6 in February
Ouch. Employment sub index fell into contraction for first time in 25 months. Looking under the hood of the report, the commentary surprisingly didn’t mention much about the weather, less than 30% of all the commentary. That caught my attention.
Eurozone Retail Sales Rise More Than Expected In January