Scoreboard: Crimean clouds

The shadow of the Crimean crisis dominated markets on Friday and will probably do so for much of this week as well. The planned referendum on secession went ahead yesterday and exit polling suggests that 93 per cent of voters opted to re-join Russia. The US has suggested the referendum is illegal and that voting was conducted under threats of violence and intimidation from Russia’s military, which of course means that the vote violates international law.

Consequently, US Secretary of State John Kerry said the US would not accept the result of the election. In contrast, Crimea’s Russians suggested the vote was held in a festive atmosphere, with the majority looking forward to leaving the corruption and incompetence of the Ukrainian government that had caused them much hardship. The US and Europe have said they would place sanctions on Russia if the referendum went ahead.

Who knows what the end game is going to be. I doubt the US has much scope to do anything, really. As the champion of freedom and democracy they only stand to lose credibility if they pursue this strategy of ignoring what the Crimeans actually want -- of undermining democracy, effectively. Moreover the US will want to be careful about being branded as hypocritical.

The fact that most Crimeans don’t want to be a part of the Ukraine means that Russia feels vindicated by its actions -- they have huge support and they do have the moral high ground here. People have a right to be administered by whomever they choose -- and this isn’t something the United Nations or the West can overlook. So the question for the US and Europe is whether it’s worth the effort and the costs (and maybe further conflict) to try to undermine something a clear majority of Crimean’s want -- and for what? For what gain? The best the US can hope for is some face-saving gesture.

Global equities generally fell, although the Dax was up 0.4 per cent. The CaC fell 0.8 per cent and the FTSE100 was off 0.4 per cent. On Wall Street, the S&P500 was down 0.3 per cent to 1841, the Dow lost 43 points to 16,065, while the Nasdaq is 0.4 per cent lower (4245).

Commodities saw a bid with gold up $6.6 to $1379. Silver outperformed that, rising 1 per cent, with copper not too far behind at 0.9 per cent. On the crude front WTI rose 0.7 per cent ($98.2) while Brent slumped 1.3 per cent ($106.9).

Forex markets saw the euro bid, up about 50 pips from Friday afternoon. As I write the unit is at 1.3897. The British pound is then about 30 pips higher at 1.664, while the Australian dollar is little changed, just below 90 US cents at 0.8997. The yen is at 101.2.

Rates saw US Treasuries do  little, with the 10-year ending unchanged (at 2.65 per cent) on a 5 bps range. The five-year yield is at 1.53 per cent and the two-year is at 0.34 per cent.

Elsewhere, data was light. In the US, producer prices fell 0.1 per cent in February to be 0.9 per cent higher annually, while the University of Michigan’s consumer confidence report suggested confidence slipped to 79.9 from 81.6. In Europe, UK construction surged 1.8 per cent in January to be 5.4 per cent higher annually.

In markets this week, there isn’t a lot of data for Australia -- motor vehicle sales today, the Reserve Bank’s minutes tomorrow and some minor releases during the week. Looking abroad, we see US industrial production, consumer prices and housing starts early in the week and then the FOMC decision on Thursday morning (0500 AEDT). Another $US10 billion taper is expected. Following that we see four Fed speakers (James Bullard, Richard Fisher, Narayana Kocherlakota and Jeremy Stein) on Friday night talking about monetary policy. Elsewhere we see the German ZEW survey and Chinese property prices as the major releases.

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.