Stocks closed lower today due to more worries about the political climate in Ukraine. The DOW, the S&P 500, and the Nasdap were all down about 2 % this week. The sense of unease is returning to Wall Street lately. The VIX, a key gauge of volatility, and CNN Money’s Fear and Greed Index, which looks at the VIX and six other indicators of market sentiment, have surged 25% and plunged into Fear mode respectively. As you may be aware, investors are waiting for Sunday’s referendum in Crimea, where voters will decide whether they will join Russia or not. The west and Ukraine argue that the vote is illegal and accuse Russia of violating Ukraine’ sovereignty.
Russia benchmark index had its biggest weekly drop in two years, down more than 7%. Also, the Russian currency, ruble, weakened more against the dollar. The Russian markets are under the pressure of the fears of the crisis that may stop the foreign investment. The UN and the EU will also take actions (possibly economic sanctions) against Russia. This is certainly not a good news for Russia’s economy.
Keith Springer of Springer Financial Advisors said that while developments in Ukraine are certainly important there was little else for traders to focus on today. With little in the way of major earnings or economic reports, he said it is “nap season” for investors. No one knows what will happen to the Russia-Ukraine situation, but it is heavily affecting the Wall Street. We will see what path Russia will take, and how it will affect the global economy.
4 Comments
Amazingly reports have already come out projecting a more than 2% decrease in GDP Growth expectations for Russia. Another cold war is being fought out here with the west and east fighting with economic growth rather than missiles. I think this type of response from the West indicates that this will largely remain an economic conflict. Russia will have to see if it can maintain its financial stability in the wake of combines US and UN sanctions.
I recently read from a couple of sources that the real motive behind Russia’s aggression in Ukraine is the control of Crimea’s warm-water port into the black sea. Russia currently has a navel base in the Crimean city of Sevastopol, but it has to rent the land from the Ukrainian government. The port is also vital to Russia’s international trade. Instability in Ukraine threatens Russia’s use of the port and therefore directly threatens Russia’s military and economy.
It seems that the Russians have decided the aggregate benefits of forcefully annexing the port outweigh the potential costs.
A relevant sidenote:
Russia’s use of the port was a hot topic in 2008, after the Ukrainian government threatened not to renew the lease after its expiration in 2017. In that situation Putin was able to use, economic sanctions and political influence to extend the lease until 2042.
http://gulfnews.com/news/world/usa/why-crimea-is-so-important-to-russia-1.1305604
Lots of motives, but waiving the red flag on the domestic political front when the economy is not doing well sounds like sufficient motive to me. It’s not as though the Crimea was a foreign country, it was an Russian-speaking administrative unit swapped around within the old USSR framework, again for reasons of domestic politics and administrative convenience.
See a more recent post on gold for comments on “the sun also rises” that also apply here.
Comments are closed.