While we see a great deal of media coverage of Ukraine-related geopolitical risks, there hasn’t been sufficient discussion about the dire economic and fiscal conditions the nation is facing. Writing about men in masks fighting in eastern Ukraine sells far more advertising than covering the nation’s economic activity. However it’s the economy, not the Russian army that has brought Ukraine close to the brink.
Softer than expected economic growth in China (see discussion) has finally spurred the PBoC into action. However, rather than undertaking asset purchases that would inject reserves into the overall banking system, the PBoC forced liquidity directly into state-owned banks.
The market’s are pricing in the Fed’s first rate hike late in the second quarter of 2015 (see chart). Investors’ rationale seems to be as follows:
Japan’s 10-year government bond yield is hovering around 0.5%, an all-time low.