Good morning!

With the conflict in Ukraine failing to abate and media reporting that a new round of sanctions might be imminent, markets only found some alleviation in a new bout of economic data that could make a case for more monetary stimuli in Europe. As it was evident in the previous week, in Europe bad data is still rather positive for risky assets as the search for yield continues to prevail as long as there is evidence that the ECB’s monetary stance will remain accommodative (to stay the least); Europe’s risky assets are thus largely driven by technical factors and, as odd at this may seem, the disappointing Manufacturing PMI readings for Spain and Italy and the lack of an upside revision in Germany’s GDP growth for Q2 (-0.2%) acted as a buffer against politically-driven corrections. In this environment, the peripheral bonds also remain well bid and Spain sought to take advantage of the buoyant market conditions by placing its first 50 year note. Meanwhile, the rates for the core countries remain at levels commensurate with low growth and rising deflation risks and excess liquidity is evident in the interbank market where the overnight borrowing rate, Eonia, slipped to a record low and remains in the negative territory where it dipped a few days ago.

While the US markets were closed yesterday, the Asian markets were generally positive on hopes for Chinese government stimulus. Similarly, the Japanese index, Topix, closed higher following reports that the new health minister is likely to be an advocate of Government Pension Investment Fund reducing its investments in domestic bonds; the upside momentum was also supported by above expectations rise wages. The emerging markets were also resilient with the Indian stocks reaching a record high.

As the ECB monetary meeting approaches, markets will probably struggle to preserve their gains as the uncertainty is taking its toll and politics might be granted greater importance. While the European futures where negative earlier today they now point to a positive opening. Meanwhile, the Ukrainian-Russian conflict is causing greater corrections in Russia where the rubble tumbled to a record low, corporate spreads have been widening and Reuters reported that Europeans might be banned from buying new Russian government bonds; nevertheless, the equity index opened marginally higher today.

On the other side of the Atlantic, news around the Russian standoff will probably carry more significance as the economic calendar is rather light except for the Manufacturing PMI data.

Have a nice day!