Keystone XL pipeline

 RBC Capital Markets notes that the highly anticipated decision on the Keystone XL pipeline, which would carry Canadian oil to US refineries, has been delayed again, and prospect of an approval by year-end appears slim. Firm says the delays have pushed producers toward alternative solutions, most importantly rail shipments, which have absorbed a surprising amount of capacity. "While Keystone XL is still a very relevant and important project, it no longer appears to be as crucial as it once did to shaping Canada's energy export future," RBC says, concluding that its impact on CAD has thereby likely diminished. The situation remains fluid, however, as tougher oil-by-rail rules introduced by Canada earlier this week could put the pressure back on pipelines.

Russian bonds yields

Naturally, Russian bonds yields are trading higher after the downgrade to just above junk status. The Central Bank of Russia (CBR) was expected to leave rates on hold at +7%, nonetheless bank officials deemed it necessary to hike the key policy by 50bps to +7.5%. From a Russian perspective, further aggressive rate hikes are neither welcome nor warranted given the obvious slowdown in growth. However, it may be a necessity given that the capital outflows from Russia are likely to accelerate over the coming months. The CBR may have no choice but to resort to capital controls or higher interest rates. CBR officials estimated that the net capital outflow for the first quarter at $64B to be the same as the whole of 2013.

British economy

There is no arguing that the British economy has enjoyed a strong recovery, but that does not mean that policymakers at the BOE see eye-to-eye on the health of the economy or inflation. The minutes of the previous policy meeting indicated that Monetary Policy Committee members were “uncertain” about the amount of spare capacity in the economy and the medium-term inflation outlook. Importantly, the MPC voted unanimously to maintain the benchmark interest rate at 0.50%. With the unemployment rate down to 6.9%, there is growing speculation that we could see a rate hike as early as next spring, although the BOE has done its best to dampen expectations of a rate increase.

Falling U.S. labor force

Falling U.S. labor force participation reflects a weak economic recovery rather than more intractable structural factors such as skill mismatches and demographic shifts, argue Danny Blanchflower, now a professor at Dartmouth University, and Adam Posen, president of the Peterson Institute for International Economics, in a draft paper.
U.S. labor force participation, the share of adults holding or actively seeking jobs, has fallen from a high of 67.3% in early 2000, with the decline accelerating after the 2008 financial crisis. At 63.2% in March, it was near its lowest level since the late 1970s.
"A substantial portion of those American workers who became inactive should not be treated as gone forever, but should be expected to spring back into the labor market if demand rises to create jobs. Labor market slack in the U.S. economy remains substantial, and subject to partial control by monetary stimulus," Messrs. Blanchflower and Posen write. Translation: There are a lot of Americans who would work if there were more jobs available, and the Fed can help spur hiring through easy credit policies.
The research adds to the debate about how much of the recent softness in U.S. economic activity can be remedied by interest rate policy at a time when borrowing costs are already close to record lows.

Crude stockpiles

West Texas Intermediate crude declined from its highest closing level in seven weeks on estimates that U.S. supplies rose last week. Brent slipped as U.S. Vice President Joe Biden met with Ukrainian leaders.
Crude stockpiles in the U.S., the world’s biggest oil consumer, probably increased for the 13th time in 14 weeks, a Bloomberg News survey shows before Energy Information Administration data tomorrow. Russia and the U.S. traded blame for failing to rein in extremists in Ukraine as a diplomatic accord, reached last week to ease the crisis, neared collapse. Vice President Biden is meeting with officials in Kiev today.

Gold prices

Gold prices are flat in Tuesday trading, as the markets return to action after the Easter holiday. In the European session, the spot price is $1291.69. On the release front, today’s key event is Existing Home Sales. The indicator has been on a downward spiral, and this is expected to continue in the March release. Will the indicator surprise the markets with and rebound higher?
US releases ended the week on a high note, as employment and manufacturing numbers were strong. The all-important Unemployment Claims was up slightly to 304 thousand, but had no trouble beating the estimate of 316 thousand. With the Federal Reserve planning another trim to its QE program at the end of the month and speculation rising about a possible interest rate increase next year, every employment release is under the market microscope. Meanwhile, the Philly Fed Manufacturing Index soared to 16.6 points, its best showing since September. This was well above the estimate of 9.6 points.

Japan’s trade deficit quadrupled

Japan’s trade deficit quadrupled in March as export growth slowed and energy imports continued to rise.A weak Japanese currency, which pushed up the cost of imports, also contributed to the widening gap.The deficit rose to 1.45 trillion yen ($14bn; £8.4bn), up from 356.9bn yen during the same month a year ago.Japan’s energy imports have been rising after it shut all its nuclear reactors in the aftermath of the earthquake and tsunami in 2011.
According to the latest trade data, imports of Liquefied Petroleum Gas (LPG) rose more than 8% in March, compared to the same month last year. Meanwhile, imports of Liquefied Natural Gas (LNG) rose nearly 4%.And Japan is having to pay more for those imports after a series of aggressive policy moves aimed at spurring economic growth – including a huge boost to the country’s money supply – have weakened the yen sharply.The Japanese currency fell nearly 10% against the US dollar between March 2013 and March this year.