Putin, prices and purchases the order of the week

The sunny weather and relaxed weekend belies the storm clouds gathering over the world’s markets this morning courtesy of movements in Ukraine once again. Ukrainian and Russian forces have clashed over the course of the weekend in the Eastern part of the country and noises from the Kremlin have been incendiary at best with the Russian government defining Ukrainian resistance efforts as ‘acts of terror’. New developments this morning are thin on the ground but a deadline for protestors to leave buildings has passed without incident. Tensions here will keep risky assets from getting too far ahead of themselves ahead of an important week of data but a continuation will see further chatter about intervention and increased sanctions on Russian assets.

The euro has come back from its Friday highs, and after having the best week since September last week, Mario Draghi once again verbally took the currency lower. Any more strengthening of the euro exchange rate would require more loosening of the European Central Bank’s monetary policy in order to maintain the overall current level of looseness, Draghi said at the IMF on Saturday. The stronger currency has been a major factor in bringing disinflation and in some cases deflation to Eurozone economies. “I have always said that the exchange rate is not a policy target, but it is important for price stability and growth. And now, what has happened over the last few months is that it is has become more and more important for price stability,” Draghi said when asked by reporters. The comments only took 0.25% off the euro and comes after another ECB member, Benoît Cœuré, fleshed out what the ECB could possibly buy as part of any quantitative easing plan.

Inflation and jobs will be the order of the week we believe. US, UK and the final Eurozone CPI number for March are all due before Easter and in the latter’s case will be closely watched to see if the stubbornly high core reading will yield to further disinflationary pressures. The numbers from the US and UK are due tomorrow while the Eurozone’s is due on Wednesday. Wednesday may finally be the day that UK unemployment hits the 7.0% level – a key psychological level for government and policy makers alike given the initial use of the level as a threshold for rate rises during the first version of the Bank of England’s forward guidance plan.

Elsewhere, throughout the week we have a significant number of S&P listed companies reporting their latest earnings numbers. JP Morgan’s numbers on Friday took the index to the lowest level in nearly 2 months and the possibility for further equity market losses, and a desire for haven currencies, could define this week’s trade.

China’s consumer price index rose 2.4% from a year earlier in March, up from 2.0% in February. This was in line with expectations but we need to see stronger figures here and throughout the Chinese economy for fears over the general strength to recede. GDP numbers are due on Wednesday morning with the market looking for Q1 growth of 7.3% since Q1 of 2009.

The release of the minutes from the Bank of Japan’s March meeting last week confirmed the view that policy is unlikely to be changed unless we see a significant fall in economic activity. Board members seemed to suggest that the recent increase in sales taxes would not affect general consumption and therefore policy will remain as stimulators as it needs to be. Anecdotal evidence from friends in Japan have shown that prices are rising at a rate of sometimes 10%; hardly an incentive for increased consumer spending.

Today’s focus will be US retail sales at 13.30; consensus is looking for an increase of 0.9% in the month of March following a 0.3% expansion in February.

Have a great day.