The tragic downing of a Malaysia Airlines Boeing 777 in airspace near the Russia-Ukraine border dominated headlines yesterday, with 298 lives lost in the crash and both nations blaming each other for the incident.
Friday, July 18, 2014
The crash bears notable parallels to other, similar incidents during periods of high international tension - notably, the Russian shootdown of Korea Airlines 007 off the coast of Russia in 1983, and the destruction of Iranian Airlines 655 by a US guided missile cruiser in the Persian Gulf in 1988. In both cases, the superpowers in question believed the passenger liners to be either military or espionage aircraft and fired on them, resulting in hundreds of casualties.
The latest disaster has been variously blamed on Russian separatists in Ukraine's Donetsk region, the Ukraine's air defense forces or the Russian military. All have invariably pointed the finger at each other.
Rush to safety in markets
This dramatic escalation of political unrest on such a crucial stage naturally unnerved investors around the globe.
Michael Rottman, UniCredit's head of fixed income strategy, told Reuters that "while Ukraine, Russia and the rebels deny any involvement or responsibility, tensions will most likely continue into the weekend. Furthermore, Israel sending ground troops into the Gaza Strip adds to geopolitical concerns. While at current levels both Bunds and U.S. Treasury valuations look extremely rich, it is clearly not the time to position in the opposite direction."
Typically, investors move into fixed-income assets from large, stable economies like theUS. and Germany in times of crisis.
Strong financial results overcome political woes
Bloomberg reported that Google's stronger-than-expected sales results helped overcome negative sentiment in the S&P 500, which slipped 1.19% yesterday. The Dow Jones Industrial average also rose this morning, climbing 50 points after a similar slide yesterday.
"The US is in a good place right now, with positive results from several domestically-focused companies," Nick Skiming of Ashburton Limited told Bloomberg today.
It seems that Google's strong results were enough to convince investors that, despite all the bad news, domestic equities remain a relatively strong and safe play. Overseas, fears remained more prominent. Russian markets were hit particularly hard, as they dealt with the combined concern over the crisis and U.S. sanctions bearing down on Russia's largest companies.
Market conditions like those seen around the world today can be tough to judge. On the one hand, you have an undeniable tragedy and a serious risk of escalating geopolitical conflict between major regional powers. The fallout from such an event can be intense; on the other hand, the repercussions could be limited to a relatively narrow sphere. At one moment, the markets may seem relatively tranquil, but bullish or bearish sentiment might take over and rapidly push indices in one direction.
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