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from MacroScope:

Ukraine inching back to the brink

Pro-Moscow protesters in eastern Ukraine took up arms in one city and declared a separatist republic in another yesterday and the new build-up of tensions continues this morning.

The Kiev government has launched what it calls “anti-terrorist” operations in the eastern city of Kharkiv and arrested about 70 separatists. Moscow has responded by demanding Kiev stop massing military forces in the south-east of the country.

Russia’s own forces remain massed just over the border and Ukrainian President Oleksander Turchinov said Moscow was attempting to repeat "the Crimea scenario”.

Washington has warned Vladimir Putin against moving "overtly or covertly" into eastern Ukraine and said there was strong evidence that pro-Russian demonstrators in the region were being paid.

from MacroScope:

Reasons to do nothing

It’s ECB day and the general belief is that it won’t do anything despite inflation dropping to 0.5 percent in March, chalking up its sixth successive month in the European Central Bank’s “danger zone” below 1 percent.

The reasons? Policymakers expect inflation to rise in April for a variety of reasons, one being that this year's late Easter has delayed the impact of rising travel and hotel prices at a time when many Europeans take a holiday. Depressed food prices might also start to rise before long.

from MacroScope:

ECB uncertainty

For European markets, Germany’s March inflation figure is likely to dominate today. It is forecast to hold at just 1.0 percent. The European Central Bank insists there is no threat of deflation in the currency area although the euro zone number has been in its “danger zone” below 1 percent for five months now.

Having appeared to set a rather high bar to policy action at its last meeting, this week the tone changed. Most notable was Bundesbank chief Jens Weidmann, normally a hardliner, who said printing money was not out of the question although he would prefer negative deposit rates as the means to tackle an overly strong euro.

from MacroScope:

A question of energy

After two days in The Hague, Barack Obama moves on to Brussels for an EU/U.S. summit with Ukraine still casting the longest shadow.

Europe’s energy dependence on Russia is likely to top the agenda with the EU pressing for U.S. help in that regard while the standoff with Russia could give new impetus to talks over the world’s largest free trade deal.

from MacroScope:

ECB deflation risk denial has echoes of 2009

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Euro zone policymakers like to talk. They often contradict each other at separate speaking engagements on the same day. But they have struck a chorus in recent weeks, asserting that deflation is not a threat.

Members of the ECB Governing Council have been particularly vocal, insisting they will not have to alter policy to counter falling prices.

from MacroScope:

ECB cacophony

A round of European Central Bank policymakers speeches this week can be boiled down to this. All options, including money-printing, are on the table but it will be incredibly hard to get it past ECB hardliners and neither camp sees a real threat of deflation yet.

Reports that the ECB could push deposit rates marginally into negative territory in an attempt to force banks to lend have been played down by our sources, not least because it would distort the working of the money market.

from MacroScope:

ECB in court

The major euro zone event of the week starts on Tuesday when Germany’s top court – the Constitutional Court in Karlrsuhe – holds a two-day hearing to study complaints about the ESM euro zone bailout fund and the European Central Bank’s still-unused mechanism to buy euro zone government bonds.

The case against the latter was lodged by more than 35,000 plaintiffs. Feelings clearly run high about this despite the extraordinary calming effect the mere threat of the programme has had on the euro debt crisis. Some in Germany, including the Bundesbank, are worried that the so-called OMT could compromise the ECB's independence and would be hard to stop once launched.

from MacroScope:

Get me to the court on time

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Another blockbuster chapter in the euro zone epic.

Top billing today goes to Germany’s constitutional court, which is expected to give a green light to the euro zone’s permanent rescue fund, the ESM, albeit with some conditions imposed in terms of parliamentary oversight. The ruling begins at 0800 GMT. If the court defied expectations and upheld complaints about the fund, it would lead to the mother of all market sell-offs and plunge the euro zone into its deepest crisis yet.

Without the ESM, the European Central Bank’s carefully constructed plan to backstop the euro zone would be in tatters. It has said it will only intervene to buy the bonds of the bloc’s strugglers if they first seek help from the rescue fund and sign up to the strings that will be attached. The first rescue fund, the EFSF, could perhaps fill this role for a while but its resources are now threadbare, so without the ESM, markets would scent blood.

from MacroScope:

The morning after the night before

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After some perplexingly negative initial market reaction to the Draghi gambit everything turned around. European stocks leapt nearly 2.5 percent yesterday and Asian shares are set to bank their biggest daily gain in six weeks. Italian and Spanish borrowing costs have fallen markedly.

The fact that the ECB has set no limit on how many bonds it might buy marks this scheme out as very different to its predecessor but we’ve seen many false dawns before so it behoves us to keep an eye on what might prevent ECB President Mario Draghi drawing a line under nearly three years of debt crisis.

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