Tag Archives: Russia

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World Watches The Situation In Ukraine Unfold

On 1 March 2014, the Russian parliament unanimously adopted a resolution to authorise the use of force in the Ukraine, if required, to protect Russians in the region. Ukrainians complained bitterly that their sovereignty was being undermined by the Russian occupation and officials issued a warning to the Russians that any military incursion would be tantamount to an act of war. The reigning Prime Minister of Ukraine, Arseniy Yatsenyuk. declared that his country would safeguard its sovereignty from Russian intervention. As such, the Ukrainian military has been put on full alert, for the protection and preservation of the integrity of Ukraine. The Ukrainian crisis has had an effect on the markets with traders rushing to buy gold as uncertainty looms in the days and weeks to come. Read more…

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Just A Minute!

Here’s today’s ‘Just A Minute’ bringing you a 60 second summary of what’s happening in the markets.

Main Trading Events Of The Day: Several today including USD Non-Farm Employment Change @ 13.30, USD Trade Balance @ 13.30 & USD Employment Rate @ 13.30 GMT

WHAT WE’RE WATCHING TODAY

U.S. Non-Farm Payrolls: Gains In Job Growth Expected

Stock markets are ready for a soft jobs report due later today. Data is expected to show that employers in the U.S. hired more workers in February than a month earlier, indicating that companies were confident that demand will bounce back from a weather-induced slowdown. Payrolls increased 149,000 last month after a 113,000 gain in January, according to a Bloomberg survey ahead of figures from the Labor Department. The jobless rate held at 6.6 percent, the lowest since 2008, the survey also showed.

Even with last month’s pickup, job gains remain smaller than those seen for most of last year as the harsh weather conditions across the eastern U.S. slow consumer spending, housing and manufacturing. The Federal Reserve is trying to determine how much of the recent cooling has been due to weather, which means the outlook for monetary policy may not become clearer until March data becomes available but analysts believe that the weather is not the only factor behind the lull in activity - businesses are working through a large amount of unsold goods accumulated in the second half of 2013, which means they have no incentive to place new orders with manufacturers.

The U.S. dollar, meanwhile, is set for its biggest weekly gain in three months versus the yen before the release of U.S. payrolls data, with Federal Reserve officials reiterating the threshold for changing its stimulus tapering is high. The U.S. currency yesterday was at its strongest versus the yen since January as reports showed fewer Americans filed claims for jobless benefits. The dollar was little changed at 102.97 yen, from 103.07 yen yesterday, and has climbed 1.2 percent this week, the biggest advance since the period ended Nov. 29.

Meanwhile, Gold traded near the highest level in more than four months and headed for a fifth weekly advance before U.S. payrolls data. Gold rose 1.8 percent this week and closed at $1,350.02 an ounce yesterday, when prices rose 1 percent on expectations that U.S. borrowing costs will hold at a record low and European inflation will gradually accelerate. The metal reached $1,354.87 on March 3, the highest since Oct. 30, as tension between Ukraine and Russia escalated.

U.S. Non-Farm Employment Change @ 13.30 GMT.

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What Is The Impact Of The Ukraine Crisis For Investors?

The recent Russia/Ukraine situation has caused some pronounced unrest in the currency markets, as well as a sharp selloff in the Russian equity market. Should investors be worried and is the safety trade the best trade? Much of this depends on whether Western influence can stop Russia invading. It is unlikely that the United States can stop Putin, but it can make it very uncomfortable for him to proceed. It is worth remembering that Russia has major pipelines running through Ukraine that deliver natural gas to the rest of Europe. Mistreating Ukraine to the point that it shuts down those pipelines would be economically devastating to Russia. It is unlikely that Ukraine will mount any meaningful military resistance to Russia simply because Ukraine is effectively broke. The Ukrainians cannot finance a war as they teeter on the edge of bankruptcy. What will punish Russia significantly will likely be the damage to asset prices that will be the consequence of investment funds leaving the country. Russia was forced to raise its overnight lending rate by 1.5 percent to defend the value of the ruble.

What does this mean for investors? Should investors be pulling up stakes in Russia and repatriating their funds home? Probably not, when you take into consideration what matters to Russia. First, oil is of great importance. Russia is one of the top producers of oil, and rising prices for crude means better revenues for Russia. Gold also matters to Russia. Russia is sensitive to the price of gold and other metals. Rising gold prices benefit Russia’s miners. The reality is that Russia likely will benefit from any spikes in commodity prices that these events cause. Russia’s markets are down significantly here and many believe they should be bought. With regard to equity prices, these are mainly dependent on earnings growth. Analysts believe that none of the events in Ukraine or Russia are likely have any impact on the earnings of companies here or in Russia. Earnings are expected to continue rising, and sooner or later the uncertainty in Russia will dissipate. Those investors who buy during the days of bad news will likely be winners once the political unrest blows over.

That sums up today’s highlights! We hope you have a profitable day on the markets.

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Putin sets new record for Olympic spending

Sochi may be expecting to set new Olympic records at the 2014 Games this winter, but it has already set its own record, and it’s all about the money.

It begins with a train. The new road and railway to the mountain resort that will host the Sochi 2014 Winter Olympics, houses a newly opened, glass-fronted train station - the largest in Russia - overseeing 52,000 miles of rail track, the third-largest network in the world. Employing nearly a million people, the 31-mile Adler-to-Krasnaya Polyana project, a route which connects the arenas and Olympic Village along the Black Sea, is certainly ambitious, with a tunnel requiring engineering work so challenging that in 2011 it was named Major Tunnelling Project of the Year at an international awards ceremony.

But it comes at a cost. It is no surprise that the state agency that oversaw the infrastructure project is Russian Railways (RZhD), whose head is Vladimir Yakunin, a close associate of Vladimir Putin. The latter sees the Sochi Games as a key to the economic and geopolitical revival of Russia, holding back nothing when it came to the budget of the Games. But while RZhD’s construction project is something for the company to be proud of - given the region’s difficult and mountainous terrain as well the rushed time frame for finishing construction -Russians are not so proud of its hefty price tag. At $8.7 billion, this train extravaganza eclipses the total cost for preparations for the last Winter Olympics in Vancouver in 2010. And that is just the railway route.

At $51 billion, the Sochi Games are the costliest ever, surpassing the $40 billion spent by China on the 2008 Summer Olympics. How the Sochi Games grew so expensive is a tale of Putin-era Russia…but is this necessity or indulgence? Some argue that only $6 billion of it is directly Olympics-related, with the rest going to infrastructure and regional development which the state would have carried out anyway. That may be true, but it is hard to imagine the Russian government building an $8.7 billion road and railway up to the mountains if there were no Olympic Games.

When in 2007 Russia was bidding to host these 2014 Winter Olympics, the superfluous amounts it was willing to spend were all about pride and winning over the International Olympic Committee. Putin’s pledge to spend $12 billion in Sochi overshadowed the bids of the other finalists from South Korea and Austria. But since then, as costs have increased, Russian officials have grown less eager to boast about the size of the final bill.

Political opposition has claimed that the Russian state spent three times more on the road than NASA did for the delivery and operation of a new generation of Mars rovers! To top that off, an article in Russian Esquire estimated that for the sum the government spent on the road, it could have been paved entirely with a centimetre-thick coating of beluga caviar!

Down the hillside at the train’s final stop, stands a giant banner: “Sochi is preparing for Olympic records!” As it stands, the only record that Sochi is hitting at the moment is that of expenditure.

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Ukraine falls out of EU hands and into Putin’s

Ukraine doesn’t mind the fact that the European Union is stricken by financial troubles and rising nationalism; they still want in. Unfortunately, their leadership doesn’t, much to the dismay of the people who protested in tens of thousands in central Kiev. Braving icy weather and tear gas to demonstrate against their leaders’ sudden decision to scuttle an EU trade deal, police estimated the crowd at 25,000, but participants and aerial photographs suggest the number was closer to 100,000.

The pact which was on track to be signed at a Nov. 29 summit in Vilnius seemed to be going ahead as planned, with Ukrainian President Viktor Yanukovych pushing through the required legislation. However, Russia’s efforts to keep Ukraine out of the EU seems to have finally made progress, as Yanukovych is deemed to have made two semi-secret trips to Russia for talks with President Putin, who must have put something on the table more attractive than what the EU was willing to put up.

As Prime Minister Mykola Azarov put it on national television, modernising Ukrainian industry to EU standards will cost at least 150 billion to 165 billion euros. According to Azarov, the Russian leader promised to renegotiate Ukraine’s contracts with Gazprom, the Russian state-controlled natural gas supplier; a price cut could help Ukraine patch its budget deficit without reducing gas subsidies to households. Gazprom denies a price reduction has been agreed.

Whatever the motivation, Ukrainian government announced on Nov. 21 that it was suspending EU association talks, and the parliament threw out the Tymoshenko bill. For many Ukrainians, this is heartbreaking news: to them, the EU agreement was a cultural, rather than an economic one. The nation’s middle class, and a majority of people living in the western part of the country, saw it as a statement of values and identity.

It seems that the cynical Ukrainian government will go with whoever offers to bail it out. Distasteful as it may be for the EU, bailing out the government could bring into united Europe millions of enthusiastic citizens, who may be poor, but determined and idealistic, perhaps even able to replace the government in the near future with a less corrupt one. Europe, however, does not seem prepared to take on such a big project. Putin is a more determined player, so victory falls in his hands – for now.

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Putin’s Pet Project: The 2014 Winter Olympics

The 2014 Winter Olympics are coming up in the Black Sea resort of Sochi, where Russia is spending a record $48 billion on the event. It will be a mad rush to the opening ceremony on February 7th, while headlines are being dominated lately by concerns about terrorist attacks, lack of snow and anti-gay laws. Yet another, potentially longer-lasting battle is playing out behind the scenes, involving Putin’s government, some of Russia’s wealthiest industrialists and a state-owned bank. The government is demanding that the country’s biggest companies stand firm on commitments to bankroll the games.

State-owned Vnesheconombank, known as VEB, lent $7.4 billion to a who’s who of Russia’s elite, in order to finance venues and apartments in the Caucasus Mountains and along Sochi’s seacoast. The moguls say skyrocketing costs and restrictions on commercial activities mean they risk losses on their investments unless the government helps. They want extended tax breaks and subsidies on the interest payments they owe VEB for Sochi assets.

Sochi 2014 might as well be renamed Putin 2014, says Scott Antel, a partner at DLA Piper LLC in Moscow, who has worked on hotel projects in the region. Antel says Putin twisted billionaires’ arms to get the Olympics off the ground in return for letting their companies run their quasi-monopolies. “This was a deal with the devil,” Antel says. “You will do your civic duty and build facilities in Sochi so we can have this coming-out party for the new Russian state. This is your indirect taxation to be allowed to continue with your main business activity.”

As Putin flies to Sochi today for three days of meetings to check on construction projects, the question remains: could Putin be staking his legacy, and Russia’s image, on his pet Olympics project?

Gerard Depardieu's Departure

Obelix Abandons Gallia

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Gerard Depardieu, perhaps the most famous French actor outside of France and known for films other than Asterix and Obelix, has abandoned France for Russia due to the French President Francois Hollande’s soviet-style tax tyranny which attempts to punish the rich into submission.

Little did King Hollande know when planning a horrendous 75% tax on those earning more than a million per annum that the French royalty comprised of actors and designers would depart France in flock in favor of greener pastures (pun very much intended). One can’t make the argument that Russia is green like the US, but it certainly has more going for it in terms of income taxation. I wonder if Mr. Depardieu might end up regretting his decision to leave the beaches of Nice for the harsh Siberian winters.

However, if fleeing celebrities are any indication, France will soon become the home for the poor and the wretched.