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from MacroScope:

Nearer the brink

A man walks past cutting boards, that have been painted with images of Russia's President Vladimir Putin, at a street store in the center of St. Petersburg

Ukraine is nearer the brink with Russian forces now pretty clearly operating over the border. The past week has seen Ukrainian forces flee in the path of a new rebel advance which Kiev and its western allies says has been directly aided by Moscow's forces.

Russian President Vladimir Putin called on Sunday for immediate talks on "statehood" for southern and eastern Ukraine, though his spokesman tried to temper those remarks, that following an aggressive public showing in which Putin compared the Kiev government to Nazis and warned the West not to "mess with us".

The deputy leader of the breakaway east Ukrainian region said he would take part in talks with representatives of Moscow and Kiev in Minsk today but did not expect a breakthrough. Russian foreign minister Lavrov is out saying the Minsk talks will aim for an immediate ceasefire without conditions although he also said Ukrainian troops must vacate positions from which they can hit civilian targets. Meanwhile, eight Ukrainian seamen have been rescued, two are still missing, after a patrol boat was sunk by artillery.

Despite some vacillation at an EU summit on Saturday, there seems no way that Europe and the United States can avoid tougher sanctions to halt what they say is direct Russian military involvement in Ukraine.

from John Lloyd:

Germany’s renewed hegemony isn’t something Europe needs to fear

German Chancellor Merkel attends news conference in Berlin

She can’t help it. Angela Merkel, chancellor of Germany, is the most important leader in Europe. She tries to duck it by exhibiting a modest demeanor, presenting no charisma, no grand pronouncements, no apparent ambition to stamp her views on history. She just carries on.

Yet European leaders vie for her Mona Lisa smile (or is it a smile?). Are we comfortable with Merkel’s influence and power?

from Breakingviews:

German yield curve is the safest one to play

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

 Bull flattening may sound like an exotic, and rather cruel, sport, but for today’s bond investor, it describes an investment opportunity. Some juicy bear flattening is also available, although it comes with somewhat more risk.

from Breakingviews:

Holiday email embargo a must-have, not an opt-in

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Daimler wants to stop email ruining the holidays of its 275,000 employees. So the German carmaker is giving them the right to have all messages received during vacation automatically re-routed, with the sender warned to try again later. In this case, choice may not be the best policy.

from MacroScope:

Euro zone recovery snuffed out

A BMW logo is seen the wheel of a car in Mexico City

A glut of euro zone GDP data is landing confirming a markedly poor second quarter for the currency area.

The mighty German economy has shrunk by 0.2 percent on the quarter, undercutting the Bundesbank’s forecast of stagnation. Foreign trade and investment were notable weak spots and the signs are they may not improve soon.

from Breakingviews:

German stocks price in sanctions tail-risk

By Olaf Storbeck

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The German economic mini-miracle is on hold. Thursday’s announcement of second quarter GDP, which was not affected by Russian trade hostilities, will probably show a decline from the weather-boosted beginning of the year. Investors are looking for worse. The 8.7 percent drop in the DAX stock index since July 3 puts it among the worst performers of major European stock markets.

from Counterparties:

MORNING BID – ‘You don’t wanna go long into the weekend’

Get ready for one of those days where people say a lot about not wanting to be “long going into the weekend.” Except perhaps in bond markets, where the rush to government debt intensified with President Obama’s remarks that the US is ready to provide air support through airstrikes against ISIS, which now controls a big swath of Syria and Northern Iraq. That’s forced a big move into U.S. and German yields, among other things, which is undermining some of the recent strength in the dollar as well. (That’s not to say it’s a strong-euro move, more of a weak-dollar move, given the declines in the dollar against the yen as well.)

What’s striking here about the rallies in U.S. debt and German debt is that even though there’s a substantial safe-haven bid behind both markets, the difference is the German 2/10 spread has narrowed from about 1.73 percentage points to 1.04 percentage points since the beginning of the year thanks to a big move in the 10-year, a bull “flattening” trade that reflects ongoing concerns about economic growth in Germany, and more broadly, in Europe.

from MacroScope:

When Mario met Jean-Claude

European Central Bank President Draghi and Eurogroup President -Juncker talk during a news conference in Nicosia, Cyprus

A day before the European Central Bank’s monthly policy meeting, ECB President Mario Draghi will travel to Luxembourg for talks with incoming European Commission president Jean-Claude Juncker. Oh to be a fly on the wall.

Some in the ECB are concerned that ultra-low sovereign borrowing costs and Draghi’s “whatever it takes” promise has relieved pressure on euro zone governments to carry on with structural economic reforms.
Juncker has signalled he is comfortable with a Franco-Italian drive to focus on growth and job creation rather than cutting debt.

from MacroScope:

Q3 rebound but at cost of price cutting?

A woman walks past a shop in Madrid

Manufacturing PMI surveys across the euro zone and for Britain are due. The emerging pattern is of an improving third quarter after a generally poor second three months of the year.

The UK economy continues to romp ahead – growing by 0.8 percent in the second quarter – but on the continent there are signs of a new slowdown. The Bundesbank now forecasts no Q2 growth at all in Germany and though the euro zone flash PMI, released a week ago, showed the currency area rebounding in July, that largely came at the cost of companies cutting prices further, thereby pushing inflation lower still.

from MacroScope:

Euro zone inflation to fall further?

draghi.jpg

Euro zone inflation is the big figure of the day. The consensus forecast is it for hold at a paltry 0.5 percent. Germany’s rate came in as predicted at 0.8 percent on Wednesday but Spain’s was well short at -0.3 percent. So there is clearly a risk that inflation for the currency bloc as a whole falls even further.

The Bundesbank has taken the unusual step of saying wage deals in Germany are too low and more hefty rises should be forthcoming, a sign of its concern about deflation. But the bar to printing money remains high and the European Central Bank certainly won’t act when it meets next week. It is still waiting to see what impact its June interest rate cuts and offer of more long-term cheap money to banks might have.

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