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Ukraine: the big event risk for markets

by Dylan Lobo on Mar 04, 2014 at 12:45

Ukraine: the big event risk for markets

Fears over conflict in the Ukraine and a renewed cold war have sent global markets tumbling.

Russia's strike into the Crimea sent the rouble tumbling to an all time low and wiped 10% off the Moscow Stock Exchange, causing panic across global markets yesterday. 

Russia's central bank responded with an emergency rate hike, raising rates by 150bps to 7% in a bid to stem capital outflows.

Some poise has been recovered today with the Russian market rebounding by 4% and the FTSE 100 recovering 75 basis points of yesterday's 100bps loss as Russian president Vladimir Putin ordered troops back to base.

However, the possibility of a full-blown war remains and presents a real threat to financial markets.

'The impact of rising commodity prices, as a result of events in Ukraine, could have a knock-on effect on market sentiment and economic growth,' said Schroders emerging market economist Craig Botham.

'There are echoes of the Georgia-Russia crisis of 2008 in current events in Ukraine, with the difference being that Ukraine has greater political significance.'

Back then, Russia fought a brief war with Georgia over the disputed territory of South Ossetia with the conflict ended by a EU-sponsored ceasefire.   

While Capital Economics' Julian Jessop expects the fallout to be short-lived, he admits the crisis has the potential to have a further significant and prolonged impact on financial markets.

'Europe is heavily dependent on supplies of Russian energy and oil prices have already jumped,' Jessop said. 'The financial burden of supporting any new Ukrainian government also looks set to fall mainly on the US and on the EU, especially if Ukraine is given a fast-track to EU membership.'

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