Always buy at the threat of war, so the adage goes. If the war happens you will have greater worries, however if disaster is averted the market will rally again. If tensions remain into Monday morning when developed markets open once again, there could be an initial negative knee-jerk reaction to the weekend’s developments.
Tensions between East and West have continued since the Second World War, and the current situation in the Ukraine is another example. Obama spoke on Friday night of “costs” should Russia send troops into the Ukraine. In what appears to be another direct challenge to President Obama, the very next morning Putin asks for permission to do just that. What sort of reaction did Obama expect to what Putin would see as a hollow threat? I think that Putin loves a challenge to his authority, and having confronted the West over Georgia and the troubles in Syria, he once again anticipates that ultimately the West will not risk escalating the situation in the Ukraine. In this particular case one can understand Putin’s point of view, to a degree; he is protecting Russia’s interests in an important region as an unelected government has replaced a democratically elected one. Once again in my opinion, Putin is calling Obama’s bluff.
Back to a world that we can analyse more easily, equity markets closed the month in a better state than they began. The FTSE 100 fell slightly in the past week, but managed to rise 4.5% on the month. In contrast, the S&P 500 rose 1.5% on the week, ensuring it finished the month slightly higher than it started and remaining close to its all-time highs. Monday morning will be dominated initially by the Ukrainian situation and monthly manufacturing data from Markit. Particular note will be paid to China’s final HSBC Manufacturing Purchasing Manager Index to see if the final figure for the month of February remains below the 50-point mark. A report below 50 is considered to show a contracting economy, while a number above 50 is considered to show an expanding economy. The initial report for China came in just below 50.
As the week progresses, Mario Draghi and Europe will likely dominate the capital markets. On Monday, Mario Draghi speaks before the Committee on Economic and Monetary Affairs of the European Parliament. Later in the week, the Bank of England and the ECB announce their respective interest rate decision, with increasing speculation that the ECB may once again cut interest rates as deflation remains a threat.
The Reuters index of commodity prices rose on Friday, to finish the month with a rise of 7%. One commodity that may be worth watching is corn as the Ukraine is responsible for about 15% of the world’s corn production. In the past six weeks the price of corn has risen by 10%.