Kinda strange that markets should get all a-jitter just as the Cyprus crisis is moving towards a resolution.
Simon Derrick of BNY Mellon asked on Friday: “The red pill or the blue pill.” The answer — choose reality — seems pretty obvious, but let’s first run through Derrick’s handy re-cap…
What’s the problem?
After that resounding no vote, what’s in the stars for Cyprus today?
Martina Stevis and Michalis Persianis write in the WSJ that there are short term ideas — basically, Cypriot and European officials are discussing capital controls for when banks are due to open next Tuesday.
Meanwhile the IMF is coming up with a plan to merge Cyprus’ two biggest banks into a ‘bad bank’, a source told the pair. The IMF wouldn’t be drawn on that.
Where does the ECB stand in all this? Read more
The hunt for an accurate Russian exposure figure to Cyprus continues.
Here’s Danske Bank’s Vladimir Miklashevsky with the best estimate we’ve seen yet (our emphasis): Read more
Paul Krugman thinks the Cyprus bailout is all about the Russians.
As he noted in his New York Times blog:
You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character. (I think it’s interesting that Mohamed El-Erian manages to write about this thing, fairly reasonably, without so much as mentioning the Russian thing.)
Quick. Someone grab a samovar! Russian liquidity it is on-tap.
In fact, Russia’s recent liquidity operations have been so substantial, they almost make Chinese efforts look puny in comparison. Read more
So Russia is getting its wallet out again. This is from the FT on Monday:
Russia is setting aside up to $40bn for this year and next to shore up the economy in case the crisis in the eurozone escalates and spreads, and is dusting off a plan that would allow the government to recapitalise the country’s banking system. Read more
Thursday’s Opec meeting is expected to be a cracker. Supply is relatively abundant right now, but Saudi Arabia wants the quota raised. Iran, Venezuela, and a bunch of other Opec members fearful for their export receipts definitely do not want that.
The FT’s Guy Chazan writes that it’s expected to be a tussle that Saudi and its Gulf state allies will lose, despite their considerable power within the cartel. The point, some industry watchers maintain, is just to send a message that Saudi’s got this: that is, it won’t let high oil prices worsen the risk of a global slowdown. A message it probably sees as very necessary as the Iranian sanction deadline draws nearer, and the world economy looks more fragile. Read more
Last November John Hempton wrote an amusing post arguing that Ben Bernanke’s problem was that the Fed’s credibility was too high, thus creating a liquidity trap, and to solve this Bernanke should do something crazy like appear on television wearing a Hawaiian shirt and smoking a spliff.
John Kay’s latest FT column looks at the problem of credibility, although more in a fiscal than a monetary context. As he points out, we frequently hear now that credibility is the problem besetting heavily-indebted governments. Credibility is seen as a kind of panacea but Kay points out it’s only a very recent concept in economics: not in Keynes, not in Smith, not in Marshall. It dates back to a 1979 article by Finn Kydland and Edward Prescott, he says, who won a Nobel economics award for their work on the subject. Read more
In this quad of graphs, can you spot the odd one out?
On a pretty gloomy Tuesday morning generally, Russia’s headline RTS index is taking a particularly severe beating.
Be it protests, the threat of a ratings downgrade (Fitch got nervous yesterday) or otherwise, something has spooked investors and Monday’s gains have been well and truly reversed. Whatever post-election-Putin-stability-bounce existed has disappeared. Read more
Police and demonstrators clashed and hundred of arrests were made in central Moscow on Monday night during protests against widespread fraud in Sunday’s election of Vladimir Putin to a third term as Russia’s president, the FT reports. Police said the protest, which began peacefully, numbered 14,000, while organisers claimed 20,000. When police tried to clear Pushkin Square at 9.45pm, a group refused to leave and scuffles broke out. Among those arrested was Alexei Navalny, the charismatic anti-corruption blogger who has become one of the main opposition leaders, though he was later released. Earlier, Mr Navalny led the crowds in a roaring chant as he denounced the elections as falsified and illegitimate. “It was a difficult day yesterday, many were disappointed. But what did you expect from this band of swindlers and thieves? They have been stealing from the country for the last 12 years. Yesterday they stole from us again.” Read more
Russia’s opposition has vowed to continue protests alleging widespread irregularities after a tearful Vladimir Putin claimed victory in an election that will see him return for a third term as president, the FT reports. With more than 90 per cent of votes counted on Sunday night, the tally for the former spy who has dominated Russian politics for the past dozen years stood at 65 per cent. That represents a comfortable victory with no need to go into a second round of voting. Later blaming the wind for the tears in his eyes, Mr Putin wasted no time in declaring victory, addressing thousands of Russian flag-waving supporters at a victory rally outside the Kremlin walls. “I promised we would win. And we did win!” Mr Putin said, to cheers from his supporters. “We won an open and honest battle.” “It was a very important test for all of our people, a test of political maturity and independence. We showed that no one can force anything upon us,” he added. Read more
Vladimir Putin has claimed victory in Russia’s presidential elections, although the opposition has denounced the fairness of the vote and vowed to continue protests, reports the FT. ”We have won in an open and fair fight,” Putin told crowds gathered in Moscow, breaking into tears during his speech, the WSJ says. “I promised you we would win. We have won. Glory to Russia,” he added. Activists said that irregularities were rife in the election, including video evidence of “carousel voting”, or voters being driven to different polling stations to cast more than one ballot, the FT adds. Mr Putin will be president until 2018. He can then run for another six years. Read more
Russia’s economy grew by 4.3 per cent last year, benefiting from a surge in agricultural output and robust consumer spending, as well as record-low inflation. Yet the country is seeing signs of a slowdown in manufacturing, suggesting that it may experience a significantly tougher 2012, according to the FT. The jump in gross domestic product surprised economists who had predicted an increase of 4 per cent, Reuters said on Tuesday, and came after a particularly strong second half. Full-year GDP growth would likely have been a full percentage point lower if Russia had not seen such a dramatic turnround in the agricultural sector, which suffered on the back of a devastating drought and forest fires a year earlier, according to Vladimir Tikhonov, chief economist at Otkritie Capital. Read more
One of Russia’s richest tycoons said on Monday he would run for president against Vladimir Putin in next year’s election, prompting speculation that the Kremlin may be trying to contain growing public dissent in its “managed” democracy, the FT reports. Mikhail Prokhorov, 46, the third-richest man in Russia and owner of the New Jersey Nets basketball team, returned to the political fray after thousands of middle-class voters demonstrated at the weekend over alleged vote-rigging in parliamentary elections. Mr Putin’s announcement in September that, after four years as prime minister, he would return to the presidency next year, has fanned middle-class anger. According to the Wall Street Journal, State television, which typically gives little coverage to opposition figures, led its 6 p.m. newscast with Mr. Prokhorov’s announcement, highlighting his assertion that he was doing it without high-level blessing. Read more
One of Russia’s richest tycoons said on Monday he would run for president against Vladimir Putin in next year’s election, prompting speculation that the Kremlin may be trying to contain growing public dissent in its “managed” democracy, the FT reports. Mikhail Prokhorov, 46, the third-richest man in Russia and owner of the New Jersey Nets basketball team, returned to the political fray after thousands of middle-class voters demonstrated at the weekend over alleged vote-rigging in parliamentary elections. Mr Putin’s announcement in September that, after four years as prime minister, he would return to the presidency next year, has fanned middle-class anger. Mr Prokhorov’s decision to run came as Alexei Kudrin, the former finance minister, said he would support the creation of a liberal party as an alternative to Mr Putin’s United Russia party. The timing fuelled speculation that the politicians were not acting independently but had received a nudge of encouragement from the Kremlin. Read more
It seems like more or less anything can be deemed an asset class these days.
Here’s the latest one from Citigroup analysts: ‘Carbs’. No that’s not McDonalds and Coca Cola, but Canada, Australia, Russia, Brazil and South Africa, i.e. the world’s top commodity players. Read more
Eurozone banks selling assets in Emerging Europe – to tart up their capital ratios under crisis pressure – is not front-page news at the moment.
Frankly, we think it should be! Read more
Massive cyber-espionage by China and Russia poses “significant and growing threats” to American economic power and national security, US officials have charged in their most direct warning on the issue, the FT writes. In an unusually blunt public document, US intelligence officials said the two geopolitical rivals had launched an onslaught of internet-enabled spying on US companies to win bargaining power and trade secrets. The claims were made in a report to Congress prepared by leading US intelligence agencies. While US officials and private researchers have frequently talked in private about the threat of cyber-espionage, the report is unusual in that it directly names the Chinese and Russian governments as being behind many efforts to steal technology. Read more
You can say what you want about the achievements of the WTO; it sure is nice to be part of the club.
Certainly that is what the Kremlin will be thinking this morning after Russia cleared the final hurdle to joining the 153-nation trade organisation after 17 years of trying. Read more
Russia has reached agreement with Georgia on terms for entering the WTO, clearing the final hurdle in a deal that could see it join the body by December after 18 years of talks, the FT reports. Maxim Medvedkov, Russia’s WTO accession negotiator, told state media on Wednesday night that Moscow had finally agreed the terms of a compromise agreement with Georgia, the former Soviet republic that went to war with Russia in 2008. It had been the only remaining member of the 153-nation trade organisation blocking Russia’s accession. The agreement should pave the way for Russia to be formally invited to join the trade body in time for the WTO’s December ministerial meeting, bringing to an end nearly two decades of tortuous talks that have kept Russia as the last major economy outside the WTO. Read more
Something to take G20 Cannes delegates’ minds off Greece…
How’s this for evidence that the emerging markets growth story is overblown? Of all the G20 countries, the US would have given you the greatest equity returns over the past year, not Brazil or China. Read more
UralKali, the world’s largest potash producer by volume, is considering a premium listing on the London Stock Exchange (LSE) – in part to banish lingering concerns about its standards of corporate governance, the company’s chief executive tells the FT. Vladislav Baumgertner, who returned to the Russian company earlier this year as chief executive after it merged with its domestic rival Silvinit, said that UralKali was examining the idea with investors. Investors outside Russia can already invest in UralKali through Global Depositary Receipts, instruments that effectively allow foreign shares to trade on the LSE. But a premium listing – formerly called a primary listing – comes with more stringent supervision and reporting requirements. Read more
Knights in shining armour that is.
The recently-floated plan for the big emerging markets to send money to Europe via an IMF-led SPV, which could be used alongside the EFSF to buy sovereign debt, is getting the lead balloon treatment. Read more