For 3-4 days after the Malaysian Airlines crash the White House gave Russia an opening to de-escalate the crisis. At first Russia was quiet and then grew defiant.
The US has heard the message loud and clear. It signals that Russia is committed to the conflict and has no appetite to marginalize the rebels. In response the US ramped up sanctions last week and will add more this week.
The White House is correct when it says Russia is now ‘doubling down’ and the tragedy has proven to Obama that diplomacy won’t work. I think we’re on the cusp on an escalation from all sides.
US 10-year yields are at the highs of the day at 2.49% as sentiment continues to improve.
That’s helping to lift the US dollar and USD/JPY has just hit 101.87% from as low as 101.76. The Asian high was 101.91.
In an usual event, the Australian dollar was the top performer last week while the kiwi lagged.
The pair is also the best performer today as it hovers near last week’s highs. The trouble for this pair is that after two weeks of non-stop gains, it’s nearing the June high and that could stall the recent momentum.
White House adviser Blinken says the US will take action this week on new sanctions against Russia, according to a Reuters headline.
Others have hinted at this but it still puts some headline risk into the market for whenever the announcement comes.
Results of the 2-year Treasury note auction.
- Highest since May 2011
- The when-issued bid was 0.545%
- $29 billion sold
No biggie but rising Fed expectations are definitely creeping into the front end and putting a big flattener on the curve.
US 2 year auction history
The Bank of England’s semi-annual survey of the foreign exchange market showed an average daily turnover of $2.402 trillion in April, that’s up 7% from October but down 6% year-over-year.
A table offers a sense of what currencies are traded the most often.
FX trading currency popularity
The full report from the BOE is here (pdf)
The good news for traders is that volatility may (finally) be on the upswing. Bloomberg looks at better trading in the past two weeks after JPMorgan Chase & Co.’s Global FX Volatility Index hit a record low earlier in the month:
The gauge reached 5.60 percent today, up from an all-time low on a closing basis of 5.29 percent on July 3. The index had tumbled from a high for the year of 8.98 on Feb. 3 and a peak of 27 percent during the worst of the global financial crisis in October 2008.
Marc Faber chewed out CNBC in an appearance today and said stocks will fall 20-30%. Then again, he’s had the same act for years.
On a positive note, he said Chinese shares were breaking out and suggested buying Hong Kong stocks. The Hang Sang index is up 4.5% in the past week.
The index has languished in a sideways move for 5 years after the crisis but is now just 2% from the 2010 high.
Hang Seng weekly chart
That IS a good looking chart. Nice series of higher lows since late-2011 and it does look poised for a breakout and rally toward 30,000.
According to RIA news, rebel commander Igor Strelkov says that insurgents under his command in eastern Ukraine had no BUK missile launchers. He also says that he had no BUK launchers under his command.
While everyone is still claiming they didn’t do it we’re still a long long way from finding out who did.
- FTSE flat
- Cac +0.3%
- Dax -0.5%
- Ibex -0.1%
- FTSE Mib -0.6%
- Italy 2.67% -4bp
- Spain 2.48% -5bp
- Portugal 3.57% -7bp
- Germany 1.15% flat
Bond yields continue to fall in the south with Spain and Italy hitting new lows.
Spanish 10 year bond yields 28 07 2014
BBVA now sees EUR/USD at 1.28 in Q2 2015 compared to 1.34 previously. For the end of this year, they now see 1.31 compared to 1.35 previously.
Update: They say the policy divergence between the Fed and ECB will drive the market in the first half of next year. They expect the Fed to tighten in mid-2015 and the ECB not to tighten until at least 2017.