Russian Troops Enter Ukraine
Equity markets suffered as traders refocused attention on the situation in eastern Europe after Ukrainian President Petro Poroshenko said that Russian troops were ‘brought in’ to his country.
Thursday, August 28, 2014 - 00:00
The awkwardly phrased pronouncement corrected an earlier translation that Russian troops had ‘invaded’. Either way, the message was clear. The conflict appears to have stepped up a gear. The S&P 500 followed Europe’s lead, declining early in the session as traders sold risky assets on the uncertain outlook. Upon opening, the S&P 500 fell 0.42% to 1992.09. The Dow Jones Industrials Index also declined, dropping 0.46% to 17,043.22.
The Ukrainian president’s bold declaration came amid increased fighting soon after captured Russian troops said they crossed the border ‘by accident’. Other states in the region were also rattled. The Latvian Minister for Foreign Affairs, Edgars Rinkevics, called on the U.N. to respond, declaring Moscow’s actions ‘war’. The Lithuanian president, Dalia Grybauskaitė, meanwhile, was also unrestrained and labelled it an ‘invasion’. After something of a détente, tension in the region has rapidly escalated, unnerving market participants.
Elsewhere, the World Health Organization (WHO) said that up to 20,000 people could become infected with Ebola before the outbreak is controlled. The contagious and lethal infection has killed over 1000 people so far, and raised widespread international concern. A recent survey found that one in four Americans was convinced that they or an immediate family member would contract the disease in the coming year. Based on the WHO’s analysis, such fears appear unwarranted. Nonetheless, until the disease is contained or a cure announced, many will continue to worry, with an uncertain impact on economic activity.
The second estimate of US Gross Domestic Product, released this morning, was little changed from the advance figure from July. Economic output is thought to have expanded by 4.2% AR (previously 4.0%) in the second quarter after a -2.1% figure in the first. Non-residential investment is now thought to have contributed a larger amount to growth. The expenditure composition of growth was broadly unchanged, with non-residential investment’s upward revision the notable difference. Elsewhere, weekly jobless claims data were also released, and once again pointed to relative strength in the economy. First-time applicants for unemployment insurance fell by 1000 to 298,000. The four-week moving average of the figure also dropped, to 299,750.
Having already been buoyed by the prospect of further policy loosening from the European Central Bank (ECB), government bond markets today benefitted from safe-haven flows. The yield on a ten-year US treasury declined a few basis points to 2.32%. Its German counterpart also fell, to 0.88%. The dollar gained against the euro, as investors sought safety. EUR/USD reversed prior gains, and was down 0.14% to 1.3175 by 6am in New York. However, any safe-haven-induced benefit was not enough to help the greenback rise against the British pound or Japanese yen. Gold, the erstwhile trusted investment in uncertain times, was up 0.76% to $1291.57.
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