6 Mar 2014
Flash: Ukraine standoff is far from over - Westpac
FXStreet (Barcelona) - Sean Callow, of Westpac Global Markets Strategy Group suspects that markets have been too quick to assume the Ukraine crisis is no longer a global concern.
Key Quotes
“The market recovery began as Russian troops ended military exercises in western Russia (not in Ukraine!). It was reinforced as Russian president Putin held a news conference in which he denied that the troops swarming Crimea were under his control and claimed no intention to annex Crimea, merely to protect Russian interests (58% of Crimea’s population claims Russian ethnicity).”
“Yet the soldiers remain in place in defiance of the Kiev government and Russian officials refuse to recognize the new administration. Moscow is also furious with US steps to impose financial sanctions.”
“From here, the risks of a surprise are surely on the negative side. The Crimea remains very tense. Equities, AUD, NZD and Asian FX would be hurt by an outbreak of fighting between Ukrainian and Russian troops. A lingering standoff would also be damaging. Russia is heavily dependent on energy exports to Europe yet at times it has been willing to use supply of such exports as a political weapon.”
“Large natural gas pipelines from Russia to the EU cross the Ukraine. Both Russia and Ukraine are also very large exporters of wheat. So a range of commodities could be impacted in global markets. The threat of supply interruptions and thus a spike in global grain and energy prices does not seem to be given much consideration at the moment but Asia would be hit harder than most.”
“Overall, it is understandable that G10 and Asian markets are not pricing in a large impact from Ukraine as the base case. But the risks to this view are skewed heavily towards the negative side, posing danger to the likes of EUR/CHF, EUR/JPY and spillover damage to AUD and NZD.”
Key Quotes
“The market recovery began as Russian troops ended military exercises in western Russia (not in Ukraine!). It was reinforced as Russian president Putin held a news conference in which he denied that the troops swarming Crimea were under his control and claimed no intention to annex Crimea, merely to protect Russian interests (58% of Crimea’s population claims Russian ethnicity).”
“Yet the soldiers remain in place in defiance of the Kiev government and Russian officials refuse to recognize the new administration. Moscow is also furious with US steps to impose financial sanctions.”
“From here, the risks of a surprise are surely on the negative side. The Crimea remains very tense. Equities, AUD, NZD and Asian FX would be hurt by an outbreak of fighting between Ukrainian and Russian troops. A lingering standoff would also be damaging. Russia is heavily dependent on energy exports to Europe yet at times it has been willing to use supply of such exports as a political weapon.”
“Large natural gas pipelines from Russia to the EU cross the Ukraine. Both Russia and Ukraine are also very large exporters of wheat. So a range of commodities could be impacted in global markets. The threat of supply interruptions and thus a spike in global grain and energy prices does not seem to be given much consideration at the moment but Asia would be hit harder than most.”
“Overall, it is understandable that G10 and Asian markets are not pricing in a large impact from Ukraine as the base case. But the risks to this view are skewed heavily towards the negative side, posing danger to the likes of EUR/CHF, EUR/JPY and spillover damage to AUD and NZD.”