All eyes on Putin

August 13, 2014

Russia's President Vladimir Putin talks to reporters during a meeting in Brasilia

Russian President Vladimir Putin will meet his top security officials prior to visiting annexed Crimea on Thursday with members of his government.

One way or another, with Ukrainian government forces encircling the main pro-Russian rebel stronghold of Donetsk, matters are coming to a head. Putin must decide whether to up his support for the separatists in east Ukraine or back off.

Tens of thousands of Russian troops remain camped near the Ukraine border and a Russian convoy of trucks carrying tonnes of humanitarian aid is heading for  eastern Ukraine. Kiev says it would not allow the vehicles to cross into its territory and it and Western governments warned Moscow against any attempt to turn the operation into a military intervention by stealth in a region facing a humanitarian crisis after four months of warfare.

Uneasy allies the United States and Iran have both endorsed Iraq’s new prime minister-designate, Haider al-Abadi, as he called on political leaders to end feuding that has helped allow Sunni militants seize a third of the country. To make the odd couple an odder triumvirate, Saudi Arabia also gave him its backing. Such is the tangled web of Middle Eastern politics.

Abadi still faces opposition from his Shi’ite party colleague Nuri al-Maliki who has refused to step aside after eight years as premier. But Shi’ite militia and army commanders long loyal to Maliki signalled their backing for the change.
Abadi is seen as a far less polarising figure than Maliki and appears to have the blessing of Iraq’s powerful Shi’ite clergy. Late on Tuesday, a suicide bomber attacked a checkpoint near the Abadi’s Baghdad home.

U.S. air strikes have shored up the Kurds’ position against Islamic State to an extent but they are also calling urgently for more arms. The European Union failed to agree on a joint position on supplying weapons but said individual members could send arms in coordination with Baghdad. Washington is sending about 130 additional military personnel to northern Iraq. The soldiers will develop options for helping Iraqi civilians trapped on Mount Sinjar by Islamic State fighters, the Pentagon said.

Palestinian officials described talks to end a month-long war between Israel and Gaza militants as “difficult” and Israeli officials said no progress had been made so far although a delegation from Jerusalem returned to Cairo for the Egypt-brokered talks. Unlike previous attempts, a 72-hour ceasefire held for a second day and is due to run until 2100 GMT tonight.

Hamas, the Islamist group that dominates the Gaza Strip, is seeking an end to an Israeli and Egyptian blockade of the coastal enclave. Defence Minister Moshe Yaalon told Israel’s armed forces to prepare for a possible resumption of hostilities.

Israel pulled ground forces out of Gaza last week after it said the army had completed its main mission of destroying more than 30 tunnels dug by militants for cross-border attacks. It wants guarantees Hamas will not use any reconstruction supplies sent into the enclave to rebuild those tunnels.

Britain has reported two consecutive quarters of 0.8 percent growth in the first six months of the year. Only the near absence of wage increases is alleviating pressure on the Bank of England to raise interest rates. However, many economists expect that to change soon and the odds on a rate rise before year-end – making the BoE the first major central bank to tighten – are falling.

Polling by Reuters last week found economists expected the first dissenters on the nine-strong Monetary Policy Committee to have called for a rate rise from 0.5 percent at their meeting last week. We won’t find that out until minutes are released next week but today the Bank will release its quarterly inflation report. That could, via its forecasts and rhetoric, prod markets into discounting a rate rise sooner rather than later.

Carney has stressed that the exact timing of a rate rise from a record-low 0.5 percent is less important than the BoE’s longer-term intention to raise rates only gradually. But the markets will be fixated on the first mover. In June, Carney shocked markets by saying they did not reflect the risk of an early rate rise. Since then, pricing is almost back to where it was before his intervention.

Latest UK unemployment data are also due while ahead of a splurge of euro zone GDP releases on Thursday, Greece’s number is expected to show its pace of contraction shrinking further. Athens forecasts the economy will put a six-year recession behind it this year and grow by 0.6 percent.

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