The Markets

Events of the last week could have been plot elements in a Tom Clancy novel. Tragically, they were real and ratcheted geopolitical tensions higher around the globe.

On Wednesday, the United States toughened sanctions against Russia. Bloomberg.com reported the new sanctions prevent specific Russian companies from “…accessing U.S. equity or debt markets for new financing with maturities longer than 90 days. They don’t otherwise prohibit U.S. companies or individuals from doing business with the Russian firms.” The European Union also introduced new sanctions although theirs were more modest than those of the United States. Russian bond and stock markets tumbled on the news. 

Soon after, The Washington Post reported the new sanctions were likely to have a more profound affect on Russia. “While earlier sanctions, primarily against individuals, have been largely brushed off as an inconvenience by their Russian targets, the new round appeared designed to cause significant blows to the Russian economy and fundamentally alter its global financial relationships.” 

On Thursday, an international commercial airliner carrying hundreds of passengers was shot down over Ukraine by a surface-to-air missile. No one has acknowledged responsibility; however, Ukrainian officials labelled the event an act of terrorism as it happened in an area of Eastern Ukraine plagued by violence associated with a pro-Russia separatist uprising. When this commentary was written, it remained uncertain whether the crash was an act of aggression or a tragic accident. 

Understandably, investors took the news poorly and fled to ‘safer’ investments. The U.S. Standard & Poor’s 500 Index lost 1.2 percent for the day – its biggest one-day drop since April. Ten-year U.S. Treasury yields also dropped and the rate on Germany’s 10-year bond closed at a record low. Stock market losses also reflected Israel’s ground offensive in Gaza. 

Meanwhile BP, which has a stake in Russia’s biggest oil producer Rosneft, fell 1.3 percent, knocking around 5 points off the blue chip FTSE 100 index. “This gives you a good opportunity to buy BP,” Joe Rundle, head of trading at ETX Capital, said. The FTSE 100 index was down 36.39 points, or 0.6 percent, at 6,525.31 points by 0817 GMT, extending Friday’s 1.2 percent decline.

American markets rebounded on Friday although geopolitical tensions continued to shadow economic and earnings news.