What will happen to the Markets next week after the Crimea Vote
DayTradersGroup News - March 15, 2013 New York, NY
If Crimea votes Sunday to break from Ukraine and rejoin Russia, the market fallout will hinge on Russia's reaction to economic sanctions that are expected to be swiftly imposed on it by the U.S. and Europe, and whether the conflict escalates militarily, Wall Street strategists say.
While the U.S. government says it won't recognize the independence referendum in Crimea, Wall Street expects the Russian-speaking Crimeans to vote in favor of moving back into the Russian sphere. As a result, investors are bracing for a number of scenarios that could either inflame or soothe market fears.Markets have been jumpy ahead of the vote, with the Dow Jones industrial average closing down all five days this week for the first time since May 2012.
The level of market turbulence on Monday depends on how punitive the sanctions against Russia are, and whether Russian President Vladimir Putin responds with diplomacy or opts to retaliate with economic weapons of its own, says Joe Quinlan, chief market strategist at U.S. Trust.
With Sanctions against Russia that could come as early as Sunday or Monday. They could have severe financial implications if they include things like the freezing of assets and credit lines, the confiscation of property, taking business deals off the table, issuing visa restrictions against leading Russians, or threatening Russia with expulsion from the G-8 group of leading economies."The stronger the sanctions the West imposes, the more likely you will see retaliation from Russia, and that is where you will see the most market impact," says Russ Koesterich, global chief investment strategist at BlackRock.How the market reacts will likely depend on how "belligerent" Russia's response is and how disruptive it is to the global economy, adds Quinlan."Will they impose their own sanctions on the U.S. or other countries?" Quinlan says. "Will they cut off natural gas supplies to Europe, which gets 30% of its supply from Russia, and hurt their already weak economy? Will they expel U.S. companies from Moscow or make it difficult for U.S. companies to operate there? If so, it will create an economic chill."
Another big wild card for markets is whether violence ensues and the crisis escalates, adds David Kotok, chief investment officer at Cumberland Advisors."It's going to depend on the guns, not the politics, because the politics in Crimea are already decided," says Kotok."If the vote is held and Crimea starts the process of becoming affiliated with Russia, and nothing happens, no troops move, the market reaction will be, 'Wow, we survived a bullet,' " he says. "But if Russian troops move, things change, and this becomes very ugly for markets."Bearish market developments would include civil war in Ukraine, Russian troop movements into eastern Ukraine, and a mushrooming of the crisis into a major geopolitical flare-up."Military escalation is not priced into markets," says Quinlan, adding that neither is the fallout from stiff economic sanctions from both sides.
Diplomacy, in contrast, is bullish.
"If Crimea votes to join Russian, and Russia hits the pause button and goes through diplomatic channels and does not make (a military incursion) into eastern Ukraine, it would signal that the crisis can start to de-escalate," says Quinlan.The most likely outcome may be a "prolonged diplomatic stalemate," notes Julian Jessop of Capital Economics. "But it would be harder for the markets to shrug off worsening violence in Crimea or an escalating trade war between the West and Russia, both of which are real risks."
However, on the eve of a crucial vote in Crimea Russia has nearly 80,000 troops poised along the border and have already begun to move into parts of Ukraine ...
SIMFEROPOL, Ukraine — Tensions mounted on the eve of a secession referendum here in Crimea as helicopter-borne Russian forces made a provocative incursion just outside the peninsula’s regional border to seize a natural gas terminal, while American and European officials prepared sanctions to impose on Moscow as early as Monday.The military operation by at least 80 troops landing on a slender sand bar just across from Crimea’s northeast border seemed part of a broader effort to strengthen control over the peninsula before a referendum Sunday on whether its majority Russian-speaking population wants to demand greater autonomy from Ukraine or break away completely and join Russia. Whatever its tactical goals, the seizure of the terminal sent a defiant message to the United States and Europe and underscored that a diplomatic resolution to Russia’s recent takeover of Crimea remains elusive.
One thing for certain is that the market has not priced in military escalation.
Russia left little impression of backing down on Saturday. Russian forces made a show of added strength here in Simferopol, the regional capital, stationing armed personnel carriers in at least two locations in the city center and parking two large troop carriers outside the headquarters of the election commission. Before Saturday, the heavy equipment had largely been kept out of the city.The more provocative move, however, was the seizure of the gas terminal in the Kherson region near a town called Strelkovoye, which drew new threats of a military response from the Ukrainian government. Until now, it has refrained from responding in force to Russian actions, but it sent troops Saturday to surround the gas terminal, according to a Ukrainian news service quoting local police, though there were no immediate indications of any shots being fired. In Kiev, the Foreign Ministry said in a statement that Ukraine “reserves the right to use all necessary measures” to stop what it called “the military invasion by Russia.”
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