Ukraine making an impact on the market

On Monday, we saw investors focus on the comments from the G20 meeting and the Vodafone cash return. Tuesday saw a little fear return as the tensions between East and West seem to escalating over the situation in the Ukraine. I wrote a short while ago that the Ukraine economy was small fry, but equity markets may take fright as political tensions rise.

The current troubles are a result of the then incumbent President Yanukovych ditching the plan to take Ukraine into the EU post President Putin’s intervention. Ukraine is strategically important to Russia, apparently many Russians believe it should have remained part of Russia. 

The US has warned Russia not to send troops into the Ukraine. This is interesting as President Putin has spent many years berating the West for interventions around the world, I would imagine he won’t take kindly to the West telling him not to interfere in what he regards as his back garden. I think my adage of looking for stories amongst the back pages that will soon be making front-page news and causing market volatility, applies well to the situation in the Ukraine. Now the story is front and middle pages of most newspapers. If the adage is correct a solution to the crisis is now being worked on. Having said that I would not be surprised to see a few more headlines causing market jitters in the coming days.

Today’s back page story that caught my eye was the gap between what the IMF sees as the capital shortfall in Greek banks and what the Greek central bank is required as a result of a Blackrock study. The Greek government is of the view that the capital shortfall is €6bn, the IMF believe it is nearer €20bn. This could be an issue if the figure of €20bn is eventually agreed as Greece will then need to be bailed out for a third time, something Greece will want to avoid. The other reason this is important is that the outcome could have implications for the wider stress tests of the eurozone banks. 

On Tuesday, it was announced that the European Commission forecast the eurozone economy to grow by 1.2% this year and 1.8% next, declaring the worst of the crisis is now over. The worst may be over, but with the continued threat of deflation still in the eurozone, employment still well above the 10% mark and Greece possibly in need of a third bailout, I would not have thought it’s time to be too complacent. 

Posted on February 26, 2014 .