Crimea crisis: how do the markets react?
Global markets have calmed as Russia/Ukraine tensions eased a little. Yesterday the US and the European Union imposed relatively mild economic sanctions on Russia compared to the expected trade embargo. US and EU announced nothing except for a freeze of key Russian and Ukrainian officials' assets, responsible for Sunday Crimea's vote. Lowered chance for a military conflict is a positive factor for market sentiment.
However, Monday decisions represent the international community’s very first response to the Putin’s external policy. It all now depends on the further actions of Russian government – as we all know, Crimea was not the only region, expressing support to Russia. Western powers have already signaled that more sanctions may follow in the upcoming days, if Russia continues “breaching the territorial integrity” of Ukraine.
Despite these threats, analysts from Goldman Sachs, BofA Merill Lynch and Morgan Stanley say Europe probably won’t back sanctions that limit Russia’s oil and gas exports. “Should Moscow curb its exports of gas to Europe, as a response to the sanctions, the countries which would suffer the most would be in Central and Eastern Europe”, ING economists say. “It is less well-shielded from interruptions to Russian/Ukrainian supply and also has fewer back-up options in terms of diverted supply from other regions of Europe”.
As a result, market attention switched from Ukraine to the upcoming Fed’s meeting on Wednesday. However, the conflict is not over - the market impact has just temporarily become lower.