MacroScope

Of Iraq and Ukraine

By Mike Peacock
June 18, 2014

Barack Obama’s message that any military support for Iraq’s besieged government is contingent on Prime Minister Nuri al-Maliki taking steps to broaden his Shi’ite-dominated government may be having an impact.

Just hours after Maliki’s Shi’ite allies vowed to boycott any cooperation with the biggest Sunni party and his government had accused Sunni neighbour Saudi Arabia of backing “genocide”, Maliki broadcast a joint appeal for national unity alongside Sunni critics of his Shi’ite-led government.

They have tried and failed to come together before but Shi’ite, Sunni and Kurdish leaders met behind closed doors and then stood somewhat frostily before the cameras as Maliki’s predecessor read a statement denouncing “terrorist powers” and supporting Iraqi sovereignty.

Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, discussed a possible ceasefire in eastern Ukraine in an overnight telephone call after Kiev said it was treating an explosion on a pipeline carrying Russian gas to the rest of Europe as a possible “act of terrorism”, intended to discredit Ukraine as a reliable supplier.

In Moscow, the World Petroleum Congress takes place with execs from BP, Exxon, Statoil, OPEC and the IEA expected to attend. The focus will be on whether their message has changed since St Petersburg’s economic forum, where they promised Putin ‘business as usual’ amid sanctions, and also on whether the top people turn up.

Washington has accused Moscow of sending tanks, heavy weapons and rocket launchers to Ukraine in support of separatists which would pretty clearly cross one of the red lines set to trigger more wide-ranging sanctions against Russia but as before the EU seems more reticent than the United States.

There is little talk of full-on trade sanctions as things stand though the EU has pledged to make a judgment at its leaders’ summit next week.

A day after its Financial Policy Committee met to discuss what to do to curb Britain’s sizzling housing market (we won’t find out until the report is released next week) we have Bank of England contributions coming out of our ears today.

Minutes of the last monetary policy meeting will be scrutinized for signs of shifts among its nine members after Governor Mark Carney signalled last week that a first interest rate rise from a record low 0.5 percent could come this year – it was less than a year ago that the guidance pointed to no move before 2016.

MPC members Andy Haldane, Ian McCafferty and Martin Weale are all speaking but could be eclipsed by the debut appearance by new recruit Kristin Forbes before parliament’s Treasury Committee.

We will probably find out next week that the FPC has decided to exercise new powers which include recommending caps on the size of home loans granted in relation to a property’s value or a borrower’s salary. It could also suggest the government curbs its “Help to Buy” scheme which helps Britons get on the property ladder.

Whatever it does, Carney has made clear these measures are no substitute for monetary policy. It increasingly looks like the Bank of England will be the first major central bank to tighten policy, an expectation which – ceteris paribus – could propel sterling even higher.

Carney said on Tuesday he would not hesitate to take further action to moderate Britain’s housing market if needed after data showed  house prices soared 9.9 percent in April, their biggest annual rise since June 2010.

British finance minister George Osborne will host the first UK/China Financial Forum, tasked with focusing on areas of mutual economic and financial importance, in particular through the internationalisation of China’s currency the renminbi.

Chinese Premier Li Keqiang and People’s Bank of China Governor Zhou speak and we will be on red alert for anything they say about the world’s number two economy.

Data out of China on Wednesday showed home prices there fell in May for the first time in two years. Analysts were divided on whether this was a welcome cool down in an overheated sector or the start of something more serious which indicates more policy support may still be needed.

Spanish, German and Portuguese debt auctions will test the market’s hitherto insatiable appetite for euro zone paper. Spain is offering up to three billion euros of three- and five-year bonds, Germany up to five billion of 10-year debt and Portugal up to 1.25 billion euros of treasury bills.

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