MacroScope

Cold War chill over Ukraine

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.

Too early to call revival in Latin America manufacturing

It may be too early to herald a revival of Latin America’s manufacturing following a recent currency decline, according to a report by London-based research firm Capital Economics.

Increased competitiveness of local factories has been seen as a good side effect of the currency shock triggered by prospects of reduced economic stimulus in the United States. However, the data compiled by Capital Economics suggests there is still a long way to go before investors see any fireworks.

David Rees, emerging markets economist at Capital Economics, wrote in his report:

U.S. housing outlook still promising despite rise in rates: Citigroup economist

U.S. housing sector fundamentals remain favorable despite the recent rise in interest rates and the sharp drop in housing starts in June, says Citigroup economist Peter D’Antonio.

Housing starts fell 9.9 percent to a ten-month low of 836,000 units in June.

But the decline was almost all in the volatile multi-family sector, D’Antonio notes. Single-family starts remained in a range just below 600,000, while multi-family fell 26 percent to 245,000.

Multi-family starts have been an important growth sector in housing in the past year, but month-to-month changes in multi-family starts – noted for their volatility – are meaningless. Multi-family housing starts rose 21 percent in March, fell 32 percent in April, rose 28 percent in May, then fell 26 percent in June.

Mixed evidence from Germany

German trade data, already out, showed both exports and imports rose more than expected in April – up a sharp 2.3 and 1.9 percent respectively. That suggests that its fabled industrial base is in reasonable shape but also that domestic demand is holding up, possibly helped by some above-inflation pay deals. The figures represent a significant bounce from the first quarter when Europe’s largest economy just managed to eke out some growth.

Let’s not get carried away, though. Germany’s PMI survey earlier this week showed a slight decline in export orders in May and the Bundesbank has just released its latest set of economic forecasts, cutting its 2013 growth forecast to 0.3 percent, adding that risks are largely skewed to the downside. It expects a healthy bounce in growth in the second quarter then a marked throttling back.

Trade figures from France, Britain and Portugal give an opportunity to see if there is any “rebalancing” going on within Europe – the argument being that the euro zone in particular can only thrive if Germany’s massive surpluses shrink a little just as the high debt countries try to pare their deficits. That requires Europe’s largest economy to buy a little more from its currency area peers. The German data showed imports from states in the single currency bloc up 5.4 percent year-on-year in April so maybe there are glimmers of movement.