Thursday 26 June 2014

Winners and Losers - economic news

A “temporary setback” in the “recovery”opines the BBC.

US GDP shrinks 2.9% in first quarter
The US economy suffered its worst performance for five years in the first quarter of 2014, latest figures show.

25 June, 2014

The economy shrank at an annualised rate of 2.9% in the first three months of the year, the third estimate from the US Commerce Department showed.

This was worse than the previous estimate of a 1% contraction, and also worse than economists' expectations.

However, the economy is expected to have recorded a sharp recovery during the second quarter of the year.

The White House said the figures showed the economic recovery was still in progress, but added other indicators for April and May suggest a rebound in the second quarter.

We should have a much better second half this year and a much better 2015 than 2014”

Just a chart....

From - Zero Hedge

Spending downgrade

The unusually cold weather in the first quarter of the year has been blamed for the poor performance of the economy.

However, the gap between the second and third estimates of US growth for the quarter was the largest on record.

The latest revision came as a result of a weaker pace of healthcare spending than previously assumed, which caused a downgrading of the consumer spending estimate.

Consumer spending - which is responsible for more than two-thirds of US economic growth - increased by 1% in the quarter, rather than the 3.1% rate as first estimated.

Trade was also a bigger drag on the economy than previously thought, with exports falling by 8.9% rather than a previously estimated 6%.

Emerging Stocks Rebound as Russian Shares Rally

25 June, 2014

Emerging-market stocks rebounded from a two-week low as Russian shares rallied after President Vladimir Putin asked lawmakers to rescind approval to use force in Ukraine. Dubai’s benchmark plunged the most in 10 months.

The MSCI Emerging Markets Index added 0.4 percent to 1,046.63. It closed yesterday at the lowest since June 5. OAO Gazprom jumped 4.1 percent to an eight-month high, leading the Micex (INDEXCF) Index up 2.2 percent. Arabtec Holding Co. slumped 9.8 percent as Dubai’s DFM General Index slumped further into a bear market. Housing Development Finance Corp. led a 1.4 percent gain in Indian equities. The Ibovespa ended a two-day drop in Sao Paulo.

Putin’s call came after Pro-Russian rebels in eastern Ukraine called a cease-fire in fighting against government forces, matching a truce announced three days earlier by President Petro Poroshenko. Brent crude rose as an al-Qaeda offshoot consolidates its control over areas of Iraq, OPEC’s second-largest producer.

Today is a reasonable day, recovering a bit from losses yesterday,” Maarten-Jan Bakkum, an emerging-markets strategist at ING Investment Management Co. in The Hague, said by e-mail. “The news of the cease-fire is positive for Russia and Poland.”

The Micex gained the most since June 2, while the ruble climbed 1.2 percent versus the dollar on optimism the rebel cease-fire in Ukraine will ease a crisis that’s left hundreds dead in the former Soviet republic. Putin asked the upper house of parliament to cancel approval granted March 1 to use force in Ukraine, Kremlin spokesman Dmitry Peskov said by phone today, confirming an Interfax report.

Ukraine Bonds

Yields on Ukrainian dollar bonds due in July 2017 tumbled 71 basis points to 8.41 percent. The UX Index in Kiev climbed 0.6 percent.

Russian Ruble Returns To Pre-Ukraine Crisis Levels

The Russian ruble is back to where it was before all hell broke loose in Ukraine on Feb. 22 with the ousting of pro-Russia president Viktor Yanukovych

24 June, 2014

The ruble was as weak as 36.65 to one on March 14, but has been strengthening ever since and is now 33.83 to the dollar. It’s down 2.99% from the start of the year.

Russian equities have been very resilient since Yanukovych’s ouster, up 5.46%. While that is not better than the MSCI Emerging Markets Index, sanctions by Washington and war talk in the media didn’t exactly destroy the market like many were forecasting.

Regardless of the stronger ruble, and an easing of tensions, large investment firms remain risk averse to Russia as a whole.

Nicolas Jaquier, an emerging markets economist with Standard Life Investments in the U.K., said they’re staying away from Russia.

From a bond market perspective we would still stay away from Russia,” he told FORBES last week. “Equities might be better because of valuations.”

The bond market has done well in the last two months, almost back to pre-Ukraine crisis levels.

I think the market now is quite complacent on Russia and sanctions are still not completely off the table. The sanctions that are in place now don’t have much of an economic impact, but you do have the massive capital outflow out of Russia because of it,” Jaquier said. Roughly $70 billion has been taken out of Russia in the first quarter. That’s money that cant be spent in the country and that has investors not very positive on the prospect on the economy.

We have been bearish on Russia for the last two years. The drivers of growth are not very healthy,” he said.

US business to run ads against Russian sanctions
Two top US business lobbies plan to run newspaper adverts warning that more Russian sanctions risk harming US workers and businesses. The trade associations warn that economic sanctions will translate into huge damages from lost trade with Russia.

25 June, 2014

The adverts will be published in the New York Times, Wall Street Journal and Washington Post by the US Chamber of Commerce and National Association of Manufacturers on June 26, Bloomberg cites a person familiar with the plans, who asked not to be identified.

US trade associations fear even temporary sanctions would inflict long-lasting damage on exports to Russia. Besides spoiling relations with Russia sanctions will force a reassessment of the political risk associated with exports and raise the cost of future financing.
Even a limited group of large Russian banks impacted by the sanctions would slow the national economy and make US imports more expensive as the ruble declines.
According to industry executives US energy companies would be required to apply for licenses for exporting technology to Russia if sanctions were agreed. Moreover, those companies exporting products with more than 10 percent of US technology content won’t be granted licenses at all.
If restrictions on technology transfer applied, exports to Russia will become more complicated. That will lead to additional expenses for US companies, especially in the energy sector which is full of high technology.
The only effect of imposing additional sanctions will be “to bar US companies from foreign markets and cede business opportunities to firms from other countries,” Bloomberg cites a copy provided by the person familiar with the plans.
President and CEO Jay Timmons of the National Association of Manufacturers (NAM), (Alex Wong / Getty Images / AFP)
President and CEO Jay Timmons of the National Association of Manufacturers (NAM), (Alex Wong / Getty Images / AFP)

The White House’s intentions face opposition from both US business and European countries who say that Washington’s unilateral action will deal nothing than a competitive disadvantage to the national economy.

The Yamal LNG gas project between France's Total and Russia's Novatek is highly dependent on US technology and will experience serious difficulties if sanctions are imposed, says Yves-Louis Darricarrère the President of the Exploration & Production Division at Total.
Yes, we need US technologies. Oil industry involves the use of the technologies of different countries around the globe. That’s why we need cooperation instead of a conflict,” Vedomosti quotes Darricarrère as saying.

German Chancellor Angela Merkel told members of her party on Tuesday that further sanctions against Russia could be back on the agenda at the Brussels summit on Friday, if Russia doesn’t take measures to de-escalate crisis in Ukraine.
Merkel praised Russian President Vladimir Putin for asking the Russian upper house of parliament to cancel his right to deploy troops abroad, describing it as a “a first step” in de-escalating the crisis.

However the Chancellor stressed that “substantial progress” with which they can go into sustained negotiations is needed.
We help, wherever we can. But when nothing helps, then sanctions can come back on to the agenda,” she added.

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