MacroScope

Cold War chill over Ukraine

By Mike Peacock
February 7, 2014

Dramatic twist in the Ukraine saga last night with a conversation between a State Department official and the U.S. ambassador to Ukraine posted on YouTube which appeared to show the official, Assistant Secretary of State Victoria Nuland, deliberating on the make-up of the next government in Kiev.

That led to a furious tit-for-tat with Moscow accusing Washington of planning a coup and the United States in turn saying Russia had leaked the video, which carried subtitles in Russian. A Kremlin aide said Moscow might block U.S. “interference” in Kiev.

Nuland is due to give a news conference today after her visit to Kiev.

Vladimir Putin is likely to meet Ukrainian President Viktor Yanukovich in Sochi as the Winter Olympics get underway. It could be awkward for Yanukovich’s opponents if they look like western pawns.

Meanwhile, Ukraine’s central bank has introduced restrictions on certain types of foreign exchange purchase to help stabilize the financial system.

After the European Central Bank sat on its hands yesterday but gave a fairly clear steer that action could be taken next month if new internal forecasts show a further deterioration in inflation and growth, Yves Mersch and Bank of Greece Governor George Provopoulos are both speaking today.

Industry output data from Germany and Britain for January will offer an interesting sweep. Forecasts are for monthly increases of 0.5 percent and 0.6 percent respectively in Germany and Britain though data on Thursday showed German industry orders unexpectedly dropped by 0.5 percent last month.

German trade figures, just out, showed an unexpected drop in exports in December. Imports also fell, though less markedly.
Spanish industry output for December is also due. The month before, output posted its biggest annual jump in nearly three years having emerged from a two-year recession in the third quarter.

But for the markets it’s all about U.S. non-farm payrolls later in the day. Employment is likely to have bounced back in January after being hampered by extremely cold weather late last year.

Britain’s David Cameron will make a speech declaring that there are just “seven months to save the most extraordinary country in history”, an indication perhaps that the UK government is nervous about Scotland voting for independence later this year.

Cameron is not necessarily a vote winner north of the border. Scottish Nationalists are already making hay with the fact that he will make the speech in London, not Scotland. Polls suggest Scots will vote to stay in the UK but there are a large amount of “don’t knows” and people yet to make up their mind.

The nationalists are keen to keep the pound after seceding. The alternative could be chaotic. London upped the ante on that yesterday with the government Scottish secretary saying that “independence means leaving the United Kingdom’s monetary union”.

S&P has reaffirmed Poland’s A- credit rating with a stable outlook, citing its “strong, increasingly open and competitive economy”. Central and eastern Europe has proved pretty resilient to the recent emerging market turmoil. Moody’s is due to deliver a verdict on Finland’s AAA rating.

In Paris, Irish premier Enda Kenny will hold talks with the OECD experts about his country’s prospects after its exit from an EU/IMF bailout.

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