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News that Russian President Putin has recalled some troops back to their bases is seen as a conciliatory gesture and the Chinese yuan closed higher, snapping a 10-day drop. The global capital markets are generally retracing part of yesterday's response to the weekend developments.

Asian equities eked out a small gain, with the MSCI Asia-Pacific Index up less than 0.2%. Europe is doing better, with the Dow Jones Stoxx 600 about 1.2% higher in late morning trading in London. East and Central European bourses are advancing too and even Russia's major indices are up around 4.3%.

Sovereign bond yields are mostly 3-4 bp higher in the large high income countries, with the exception of Japan. Japan's 10-year bond is consolidating yesterday's advance, which saw the yield drop to new 10-month lows near 57 bp. The continued demand for peripheral European bonds is also evident with Spanish, Italian, Portugal and Greek bonds firmer.

Even though the situation in Ukraine and Crimea are not very clear, the important point for investors is that there has not been any escalation. The US push for a more assertive response in the realm of sanctions was softened by Europe's efforts for more diplomatic efforts first. This is not the first or last time, there is an asymmetrical risk perceptions, which are not only influenced by Europe's material energy needs.

Europe seems more willing to accept Russia's demand for a sphere of influence. For sure, it wants the smallest such sphere as possible and it would like to have had the Ukraine outside that sphere. However, the move in Kiev to drop Russian as the second official language was too much for Putin who apparently saw it, like greater economic integration with the EU as a step on a slippery slope that would make it increasing difficult to block it from joining NATO.

There are three main macroeconomic developments to note. First, in Australia, as widely expected the RBA left rates on hold, and renewed its warning that the Australian dollar is historically high. This is seen as a somewhat milder protest than the phrase the RBA dropped last time that the currency was "uncomfortably high".

The Aussie is well off yesterday's dip below $0.8900, but there is not much momentum and the market seems reluctant to take it back above $0.9000 ahead of tomorrow's GDP and Thursday's January trade balance and retail sales reports. Separately, Australia reported a large 6.8% jump in January building approvals, the first rise in 4 months and the a modest upward revision to the December series.

Second, the UK construction PMI was softer than expected, hitting a four month low of a still lofty 62.6. The market had expected a pullback from the record (for this short time series, going back to mid 2008) 64.6 reading in January, but half of what was delivered. Too much should not be read into the data, it remains at relatively high levels, poor weather may have played a role, and it is the smallest of the sectors covered by the PMI. Tomorrow's services report covers a much larger swath of the economy. Sterling initially extended yesterday's losses in Asia, but rebounded to almost $1.6720. We see scope for modest gains in the North American session today. In a similar vein, we suspect the euro can extend its recovery, but a close above $1.38 may still prove difficult.

Third, in Japan wage earnings fell 0.2% in January, the first decline in 3-months and the December increase was revised to 0.5% from 0.8% initially. The limited wage increases remains one of the key shortcomings thus far of Abenomics. That said, base wages, the important measure of recurring income, rose 0.2%, the first increase in almost two year and this is with unemployment tending lower to sit at six month lows.

Outside of the NY state ISM, today is the "in-between" day for the US, with no significant data due out. Tomorrow sees the ADP employment estimate, the non-manufacturing ISM and Beige Book. The confirmation hearings of Obama's appointments to the Fed, includin Fischer as Vice-Chairman, have been postponed.

Source: Calmer Markets As Tensions Ease