Ukraine Sees More Russian Incursions as Standoff Worsens
Comment of the Day

March 03 2014

Commentary by David Fuller

Ukraine Sees More Russian Incursions as Standoff Worsens

Here is the opening for this informative article from Bloomberg:

Urkaine warned that Vladimir Putin’s military is strengthening its presence in Crimea amid the worst standoff between the West and Russia since the Cold War ended.

Russian servicemen confronted Ukrainian army units in the Black Sea district in the last 24 hours, while fighter jets violated airspace and more war ships arrived, border guards and the Defense Ministry said today. U.S. Secretary of State John Kerry is traveling to Kiev after discussing sanctions against Russia. European Union foreign ministers will meet in Brussels.

Crimea, where ethnic Russians comprise the majority, has become the focal point of Ukraine’s crisis after an uprising triggered last month’s ouster of President Viktor Yanukovych. Ukraine has mobilized its army and called for foreign observers after Russian forces took control of the peninsula Russia raised its interest rates today as asset prices plummeted.

David Fuller's view

Given the history of Crimea, which Russia has long controlled and where it also has important strategic interests, I do not see any easy, peaceful outcome as far as Ukrainian is concerned, and this creates potential problems for Europe and possibly the USA. 

However, Fuller Treacy Money’s principal interests are in considering how this military situation will affect the markets that we follow on behalf of subscribers.  

Markets have given some clear signals today, as last week’s hopeful articles that Putin would proceed in a cautious or clandestine manner were quickly dispelled by his rapid movement of Russian troops into Crimea. 

This has certainly surprised most western observers and at a time when their stock markets were temporarily overstretched following rallies in February.  This year we have seen leading stock markets move from short-term overbought conditions at the beginning of January to oversold in early February and in the first trading day of March they are retreating sharply from another temporary overbought condition.  

The action is in line with the choppier environment for stock markets that this service has predicted for 2014, following the many exceptional gains in 2013.  How persistent this month’s corrective phase will be depends on the events currently dominating market sentiment.  However, it would not be surprising to see another fairly rapid move to an oversold condition, given the potential seriousness of Russia’s movement of troops into Crimea.  

That said, I am not aware of any shots being fired by the Russian troops to date, at least not relative to the civil war that Kiev was still experiencing only last week.  However, we know that this could change very quickly, but presumably only if Ukrainians are provoked to retaliate against Russian troops in Crimea.  Ukraine’s civil war could also flare up again in Kiev or in the more industrialised region along the Eastern boarder where Russian’s are at least a significant minority relative to Ukrainians.

The European Union, Great Britain, and the USA will continue to sympathise with Ukrainians and offer some financial support, directly and through the IMF.  However, there is little chance that they would participate in any military effort against Russia in Ukraine.   

Europe’s stock markets have fallen the most today, being closer to the source of trouble and also because they are dependent on Russian gas and oil.  Sharp downward dynamics have occurred, as you can see from these daily chart samples: Poland, Germany, United Kingdom, Spain, the Netherlands and Switzerland, all from a lower high.   France, Italy and Sweden fell from new recovery highs in February. Denmark and Belgium reacted from quite overextended advances in February.  In all instances, closes back above the February highs are required to offset current scope for further reactions towards at least their 200-day moving averages.  The USA’s S&P 500 and Nasdaq Composite had considerably smaller percentage declines today but from generally higher levels in terms of valuations.  They also closed will above their lows. Nevertheless, here also closes above the February highs are required to offset current scope for further reactions in response to the crisis in Ukraine and a short-term overbought condition.

Here is another informative article on Crimea from Bloomberg: Putin Crimea Grab Shows Trail of Warning Sighs West Ignored.

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