6 Mar 2014
Flash: Putin’s hard line: Crimea river - Westpac
FXStreet (Barcelona) - Sean Callow of Westpac Global Markets Strategy Group notes that global markets paid no real attention to the street protests in the Ukraine which began in November when the government reneged on a planned trade pact with the EU and instead received a promise of a $15bn loan from Russia and discounted gas supplies.
Key Quotes
“Even the brutal street violence into February drew only passing attention from markets fixated on US snow storms and Fed commentary.”
“It wasn’t until last week when Ukraine’s pro-Russian president Yanukovych was impeached and fled the country that attention increased and Ukraine only became a major influence on global prices when Ukraine’s new government reported thousands of Russian troops had entered the southern Ukrainian region of Crimea, breaking into the parliament and surrounding key locations, including preventing Ukrainian military personnel from entering their own bases. Gold and oil prices jumped, EM currencies (especially in E Europe) and equities tumbled.”
“Yet global markets rarely remain focused on geopolitical crises for very long if the tensions appear to be a regional issue. Investors in the G10 and Asia can easily make the case that Ukraine’s travails will not have a sustained global impact.”
“In terms of direct trade flows, as a low income economy squeezed between the EU and Russia, Ukraine of course has limited global impact. Financial exposure to the Ukraine is also low. BIS data shows European banks have lent $23bn to the Ukraine. While hardly a trivial sum, it is a small share of total lending.”
“But perhaps more importantly, the West is already pledging financing aid, with an IMF delegation already in Kiev and the EU also pledging loans. The limited global impact of Russia’s Aug 2008 invasion of Georgia also argues for attention to move elsewhere, as does the West’s very clear desire to avoid military involvement.”
Key Quotes
“Even the brutal street violence into February drew only passing attention from markets fixated on US snow storms and Fed commentary.”
“It wasn’t until last week when Ukraine’s pro-Russian president Yanukovych was impeached and fled the country that attention increased and Ukraine only became a major influence on global prices when Ukraine’s new government reported thousands of Russian troops had entered the southern Ukrainian region of Crimea, breaking into the parliament and surrounding key locations, including preventing Ukrainian military personnel from entering their own bases. Gold and oil prices jumped, EM currencies (especially in E Europe) and equities tumbled.”
“Yet global markets rarely remain focused on geopolitical crises for very long if the tensions appear to be a regional issue. Investors in the G10 and Asia can easily make the case that Ukraine’s travails will not have a sustained global impact.”
“In terms of direct trade flows, as a low income economy squeezed between the EU and Russia, Ukraine of course has limited global impact. Financial exposure to the Ukraine is also low. BIS data shows European banks have lent $23bn to the Ukraine. While hardly a trivial sum, it is a small share of total lending.”
“But perhaps more importantly, the West is already pledging financing aid, with an IMF delegation already in Kiev and the EU also pledging loans. The limited global impact of Russia’s Aug 2008 invasion of Georgia also argues for attention to move elsewhere, as does the West’s very clear desire to avoid military involvement.”