News, innuendo, rumor or fact has capital markets on the back-foot. Being a nimble forex speculator can pay dividends, however, for most investors they have preferred to be prudently cautious and have applied some safe haven strategies rather than wait this geo-political saga out. To go all in with risk aversion would have been costly as seen by some of the asset price retracement over the past 12-hours. Various asset price movements are as fickle as Putin's orders, it seems. For now, the market seems intent to price out some of the "worst case scenarios" at least until a single shot has been fired or a military base being stormed. Despite the tough rhetoric from Ukraine and the unyielding position from the Russia envoy expressed at the UN yesterday, all interested parties are biding their time to secure as much international support as they can before any rash decision is acted upon.
With Putin ordering troops exercising near the Ukraine border back to base seems to have lifted some of the original market tension and prompted a return of risk appetite to both Asian and European bourses. Where to from here on the diplomatic front depends wholly on Putin and company and what their "real" objectives are. Despite somewhat volatile price movements, the market volumes remain thin - a massive feature both "down and up" to date. Even if this is an elaborate stunt by Putin it will certainly cost the "Motherland." Russia's creditworthiness is not in doubt – CRB reserves are immense. Political risk has always been a foreign investor's primary concern and goes with the rogue territory. However, the backlash from Putin's little escapade into Crimea should see further global condemnation and perhaps the implementation of economic sanctions that will only cause another body blow to an already faltering-Russian economy. All of this will only further deepen investor mistrust of most Russian institutions. Business with Russia is not a one-way street by any stretch of imagination. Plying large-scale sanctions on Russia just would not be feasible for some of Russia largest trading partners. Business with Europe runs deep and frankly Europe does not have the economic will to sever any economic ties. Russian imports of European gas supply are about +24% and the Motherland represents about +32% of OECD crude imports. No one comes out even close to being a winner.
With Crimea a global distraction, the Reserve Bank of Australia was taking care of business, and kept its leading benchmark rates unchanged as widely expected (+2.50%) in the overnight session. Despite the geopolitical anxieties, Governor Stevens and company kept a broadly "neutral" bias. Most notably, Aussie policy makers again inserted the passage that "exchange rates remain high by historical standards" and was also a bit more dovish on inflation, deleting expectation for prices to be higher than previously forecast. The AUD remains volatile and has actually managed to move a tad higher (0.8950) despite the RBA's jawboning and ongoing geopolitical issues. The RBA's stance will surely be able to cap the currency for the time being, convincing more speculators to consider adding to their current short position on rallies. In 2013 the AUD was one of the worst performing major currencies after Governor Stevens and company were able to walk it down using mostly rhetoric. Outright the currency was down -15% from its peak in early 2013.
The commodity sensitive currencies, like the AUD or CAD, will not be getting too much love from the "yellow metal." Assuming that tensions are easing in Crimea has precious metal prices retreating this morning. Gold has fallen just under -1% to $1,338 ahead of the open stateside. The potential ease of tension has instigated widespread liquidation with few buyers about. The commodity spiked +1.6% with geopolitical tensions escalation and no signs of any further physical demand could be the start of a meaningful pullback in prices. The market trend will depend on what transpires in Ukraine.