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EasingTensions Provide Buying Opportunitiy

Equity markets in Europe continued as their Asian counterparts left off yesterday, all posting gains north of one per cent. The move was a continuation of the mild ‘relief rally’ theme as Russia spoke about stopping military exercises at the Ukrainian border.

 

The sigh of relief may be a little premature, as there is some small concern that Putin could now send ‘aid’ to Ukraine as a cover against getting boots on the ground in the country, though he has been warned against doing this by just about everyone in Europe with ‘president’ in their job title. Despite the warnings, there are reports this morning that a large convoy containing humanitarian aid has left Moscow, though the Red Cross might be in a position to take over the aid delivery and keep everyone happy.

Whilst markets see tensions lifting, senior European officials look to be digging in for the long game and are apparently courting South American countries in a bid to stop them bridging the trade gaps with Russia that the sanctions will bring. According to the FT, Brazil has authorised significant export increases to Russia of meat products, whilst Chile is looking to pick up the fish trade. Obviously Brazil, as well as a lot of other Latin countries could do with the extra business, so talks could be tricky.

The risk rally actually took the Dollar with it yesterday, as traders moved out of the safe haven Yen trade and back into the Dollar, so the Greenback continued to strengthen gradually, putting it very  much on the front foot, despite interesting comments from the Federal Reserve’s second in command that the continued slower than expected growth in the United States might just be the new normal. Stanley Fischer, speaking in Stockholm yesterday, said “it is possible that the under performance reflects a more structural, longer-term shift in the global economy” His continued comments along the same track were actually greeted fairly warmly on Wall Street, as traders chose to interpret them to mean that the Fed is in no hurry to raise rates, instead of heeding the cautionary tone.

 

Something that most of the US won’t be happy to see is a long range weather report that says the polar vortex could make a return to the north east of the country as early as September. The news certainly won’t be welcome by the Fed, who squarely blamed the last one on the abysmal performance of the economy during Q1, however investors are probably eagerly awaiting another factor that might stall any hint of an interest rate rise.

Sterling hasn’t helped itself against the Dollar overnight, as like for like food prices made for disappointing reading in the marketplace. Food prices actual fell by 0.3% compared to June, as supermarkets continue to war over prices and have the luxury of strong crop yields to keep their own purchase prices down. The fall means that less pressure is likely to be felt by the Bank of England and investors may start to adjust their expectations of what Mark Carney has to say in tomorrow’s inflation report.

Overnight news flow away from Ukraine and Iraq has been very limited. We saw a couple of downgrades from S&P, who have demoted a couple of Austrian regions as another reasonably strong European economy appears to be coming under pressure to sustain a post GFC turnaround. WE also heard the OECD say that Germany’s prospects for a turnaround of recent poor growth later in the year is unlikely. This comes ahead of their GDP announcement tomorrow.

On the wires today, we’ll hear more on Germany in the form of ZEW data. Italy will post their inflation numbers, as will Portugal. We’ll be interested to read Ireland consumer confidence figures to see how the cracks forming in Europe are affecting their mood. This afternoon we see the US monthly budget statement as the only possible market mover, but those that are at their desks are more interested in geo-politics than government spending at the moment.