Putin desperately seeking gas deal

May 20, 2014

Ukraine seems to be in something of a holding pattern before Sunday’s election though the question of how those polls can be securely conducted in parts of the country where pro-Russian rebels want to secede remains a very live one.

We reported yesterday from Donetsk where officials working to prepare for the May 25 presidential poll described intimidation and threats from separatists which prompted them to shut down their office. The interior minister in Kiev has said it would be impossible to hold “normal elections” in the regions of Donetsk and Luhansk which are home to nearly 25 percent of the electorate.

Moscow said yesterday that President Vladimir Putin had ordered Russian forces near Ukraine’s eastern border back to their bases, though NATO and the United States said they saw no sign of a pullback.

Putin is in China, hoping to sign a long-sought deal to supply it with gas. Both sides have yet to agree on a price. Gazprom says the talks are now in their “final stage” though it may have to lower its sights given the prospect of it losing business in Europe has rather strengthened Beijing’s negotiating hand.

If a deal was sealed it could re-embolden Putin in terms of his dealings with the West although revenues from China would take some years to start flowing.

The Kremlin has just stated that talks are continuing and “there is still work to do on price”. On Monday, sources said Gazprom wanted China to pay $25 billion now to secure future gas supplies, whereas Beijing is reticent, concerned that other suppliers would seek similar deals.

U.S. Vice President Joe Biden is in Romania and Ukrainian Foreign Minister Andriy Deshchytsia meets with German Foreign Minister Frank-Walter Steinmeier in Berlin.

We have another clutch of European central bankers speaking at a Frankfurt conference, including Bank of Italy chief Ignazio Visco, Danièle Nouy, chair of the Supervisory Board of the ECB, Bank of Spain governor Luis Maria Linde and Swedish central bank governor Stefan Ingves.

If there was any doubt about what Mario Draghi was saying after the last policy meeting when he declared the ECB was “comfortable with acting next time”, ECB Executive Board member Yves Mersch spelled it out even more clearly on Monday, stating that the chances of fresh policy action in June had grown substantially.

Five senior sources told us last week that the ECB was  preparing a package of policy options for its early June meeting, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.

With EU elections just days away, there are signs that right-wing party leaders in different countries are trying to avoid each other rather than focus on creating an influential bloc in the new European Parliament.

The anti-EU UKIP could still top the polls in Britain but its leader, Nigel Farage, whose man of the people image has resonated, may have blundered by saying people should be concerned if Romanians moved in next door. That drew fierce condemnation across the political spectrum. The party took out a large advert in a national newspaper yesterday to deny it was racist.

Later today, the leading candidates to be the next European Commission president –  centre-right Jean-Claude Juncker and centre-left Martin Schulz – will duel in another live television debate. None of these events have yet captured the public imagination.

A smattering of data for the markets to digest. With deflation still the talk of the euro zone, German producer prices have just fallen 0.9 percent year-on-year in April, doing nothing to ease ECB concerns.

UK inflation is forecast at 1.7 percent, well below the official 2.0 percent target though the Bank of England is clearly focusing on the housing market as the main threat it might have to counter. Bank of England Deputy Governor Charlie Bean speaks this evening.

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