MacroScope

A question of gas

A Ukrainian soldier sits on top of an APC at a checkpoint outside the city of Slaviansk

German Chancellor Angela Merkel is in Washington for talks with Barack Obama after Europe and the United States imposed wider sanctions on Russia.

Obama is already looking ahead to a third round of measures and has hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite. At home, the Republicans are accusing him of weakness so will he put pressure on Merkel to move ahead in a way that the European Union has shown it is entirely unready to, at least yet?

The east of Ukraine remains in turmoil with pro-Russian separatists, who have seized civic buildings and police stations in a number of cities and towns, saying Ukrainian forces had launched a big operation to retake the eastern town of Slaviansk. That would mark the first significant military response from the government in Kiev.

The interior minister said a pilot has been killed and others wounded by anti-aircraft missiles used by the rebels. Separatists said at least one helicopter had been shot down.

In the city of Donetsk, capital of a province of about 4 million people, rebels have called a referendum on secession for May 11. The IMF has warned it would have to redesign its $17 bailout for Ukraine if it lost territory in the east.

Most accurate U.S. growth forecasters say to brace for stronger data this week

Arrows shot by Olympic hopeful and member of the U.S. archery team Gibilaro are seen in the target in BranfordThe two forecasting teams that came closest to predicting the U.S. economy would nearly stall in the first quarter expect other key economic data due this week to be strong.

This gives some support to the view — which some say is more hope than a forecast — that a snap-back is already taking place as the Federal Reserve and most other analysts expect.

UBS and First Trust Advisors both forecast the world’s largest economy grew by a meager 0.5 percent on an annualized basis during the first three months of the year.

ECB still the major source of funding for banks

European Central Bank President Draghi smiles during the monthly ECB news conference in FrankfurtThe European Central Bank is still the main funding source for banks even if it is not acting as lender of last resort for governments in the currency bloc.

On Tuesday, banks took nearly 173 billion euros from the ECB at its weekly tender, the highest since June 2012 and well above a Reuters poll consensus of 130 billion euros.

The spike in actual allotment versus expectations is the highest in over a year. The amount maturing from last week was just shy of 122 billion.

Will sanctions bite?

Financial markets may view the latest sanctions against Russia as feeble, but the reaction from Moscow – Vladimir Putin threatened to reconsider Western participation in energy deals and his foreign minister, Sergei Lavrov, said they were the work of weak politicians – suggests otherwise.

Russia’s top oil producer, Rosneft, will release first-quarter financial results after its boss and close Putin ally Igor Sechin was put on the U.S. sanctions list. Yesterday, energy giant Gazprom – whose chief escaped censure – said further Western sanctions over Ukraine could disrupt its gas exports to Europe and hit its business and shares.

The International Monetary Fund will report on its regular mission to Russia. On Tuesday, the Fund said it was preparing to cut its growth forecast for the second time in a month. Many are now talking about a recession this year and capital outflows exceeded $60 billion in the first quarter.

More hope than conviction for euro zone inflation rebound

ECB President Mario Draghi has a friend in euro zone economists of late. They tend to line up and take his view, at least when it comes to forecasting inflation.

There is no serious risk of deflation in the euro zone, nearly every one of them says, and from here onward, euro zone inflation will only be higher than the March trough of 0.5 percent.

That is the line you need to take if you are not yet willing to say that the central bank, which has chopped policy rates all the way to the floor, is more likely than not to print money to get out of the mess.

Britain’s economic sprint probably tripled U.S. growth in Q1

What a difference a year makes.

This time last year, analysts and investors were nearly unanimous in their expectation for a whole lot of nothing from Britain’s economy which, after a valiant leap higher from a spectacularly successful 2012 Olympic Games hosted in London, was back to just bumping along.

Now the UK is looking to clock the best sprint in the G7 for the first three months of a year – and by a wide margin.

The Reuters poll found a consensus for 0.9 percent growth in the UK in the first three months of the year on the quarter before. That would be the best in nearly four years, and just slightly below the Bank of England’s newly upbeat prediction. The data are due on Tuesday.

Obama impatient with EU over Russia

The G7 has said tougher sanctions on Russia could be imposed as soon as today. EU ambassadors  are holding an emergency meeting in Brussels.

The EU will extend travel bans and asset freezes to more people involved in the Ukraine intervention. For now, Washington is treading the same path though maybe more explicitly targeting Vladimir Putin’s “cronies”.

Barack Obama is already looking ahead to a third round of measures and hinted at impatience with Europe, saying there had to be a united front if future sanctions on sectors of the Russian economy were to have real bite.

Scrambling to flesh out skeleton Fed board

“It’s about time” was the general reaction when on Thursday the Senate Banking Committee scheduled a vote on Barack Obama’s nominees for the Federal Reserve board. Not that Stanley Fischer, Lael Brainard and Jerome Powell (a sitting governor who needs re-confirmation) have been waiting all that long; it was January that the U.S. president nominated them as central bank governors, and only a month ago that the trio testified to the committee. The urgency and even anxiety had more to do with the fact that only four members currently sit on the Fed’s seven-member board and one of those, Jeremy Stein, is retiring in a month. The 100-year old Fed has never had only three governors, and the thought of the policy and administrative headaches that would bring was starting to stress people out. After all, the Fed under freshly-minted chair Janet Yellen is in the midst of its most difficult policy reversal ever.

“Boy it would be more comfortable if there were at least five governors and hopefully more” to help Yellen “think through these very difficult communications challenges,” said Donald Kohn, a former Fed vice chair. Former governor Elizabeth Duke, who stepped down in August, said one of the Fed board’s strengths is its diversity of members’ backgrounds. “With fewer people you don’t have as many different points of view on policy,” she said in an interview.

The Senate committee votes on the three nominees April 29. But they can’t start the job until the full Democratic-controlled Senate also schedules a vote and gives them the green light.

Nearer to the brink

De-escalation?  Forget it. Ukrainian forces killed up to five pro-Moscow rebels in the east yesterday and Russia launched army drills near the border in response.

The big question now is whether Russian troops will cross into eastern Ukraine following a constant stream of warnings from Moscow about the security of Russian speakers there.

Foreign Minister Sergei Lavrov is expected to have a telephone conversation with U.S. Secretary of State John Kerry, following last week’s Geneva accord which aimed to pull things back from the brink. Kerry said yesterday that Russia’s “window to change course is closing” and U.S. President Barack Obama said tougher sanctions were ready to go. There is no question of Western military intervention.

Talking the talk

European Central Bank President Mario Draghi delivers a speech in Amsterdam which will fixate the markets following his recent statement that a stronger euro would prompt an easing of monetary policy.

Most notably via his Clint Eastwood-style “whatever it takes” declaration the best part of two years ago, Draghi has proved to be peerless in the art of verbal intervention. But even for him there is a law of diminishing returns which may require words to be backed up with action before long. 

In the 12 days since he put the euro firmly on the ECB’s agenda, the currency has actually weakened a little and certainly shied away from the $1.40 mark which many in the market see as a first red line for the euro zone’s central bank. That is probably because investors expect action from the ECB  soon and if so, there are good reasons to think they may be wide of the mark.