Daily Note – End Game?

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Russia: Don’t expect Putin to roll over
United States: Initial Claims falls to recovery low
South Africa: SARB hikes by 25bp
Eurozone: ECB to give banks preliminary stress test findings in September/October

Good morning,

When you outsource bad behavior to your thugs, you are unfortunately at their mercy. This happened with the British government in Northern Ireland and the Yugoslavian government in Bosnia. Eventually the thuggish tail can wag the official dog.

Yesterday’s murder of hundreds of people on a Malaysian jet by Russian separatists in Ukraine means that the calculation of Putin has backfired badly. The Russian market is not to be touched now, even though valuations are attractive, because Putin will be forced to rein in these guys and if he doesn’t, more sanctions on Russia are a certainty.

If he does bring the pro-Russian militia to heel, he will be seen as a coward in Russia and he won’t do this. So Russia’s collision course with the West is now unavoidable. This is bad news for Europe and Germany in particular, given Germany’s exposure to Russian energy and the Russian consumer market.

To use market parlance, this was the tail risk event in Ukraine and now it has happened.

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Global Macro-Daily Note 18th July 2014

 

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Categories: Daily Note