Ukraine fears weigh on global stock markets
London (Aug 28) Fears of an escalation in the conflict in Ukraine weighed on global stocks markets Thursday, particularly in Russia, but sent the price of gold sharply higher as investors sought out what are considered to be safe places to park cash.
KEEPING SCORE: In Europe, France's CAC 40 dropped 0.7 percent to 4,365, while Britain's FTSE 100 was down 0.5 percent at 6,800. Germany's DAX fell 1.3 percent to 9,447. Russia's benchmark MICEX index fared even worse, dropping 1.8 percent. Wall Street was poised for declines at the open, with Dow futures and the broader S&P 500 futures down 0.2 percent.
UKRAINE: The mood in the markets turned increasingly negative during the European trading session after Ukraine's president called an emergency meeting of the nation's security council and canceled a foreign trip. President Petro Poroshenko summoned the council as the strategic southeastern Ukrainian town of Novoazovsk appeared firmly under the control of Russia-backed separatists. He declared that "Russian forces have entered Ukraine," as concerns grew about the opening of a new front in the conflict. Russian markets were hit particularly hard as fears increased that the country was escalating its role in the conflict, a move that could provoke the U.S. and European Union to impose further sanctions on Russian businesses and individuals
GEOPOLITICAL UNCERTAINTY: It's not just stocks that are being affected by concerns over Ukraine. When geopolitical tensions are high, investors often look for secure assets. So-called safe haven assets such as gold and U.S. Treasurys and German bunds were beneficiaries of this flight to safety. An ounce of the precious metal, for example, was up nearly $11 at $1,294.
ANALYST TAKE: Joao Monteiro, analyst at Valutrades, said risk aversion is "creeping into play now with concerns that the situation could escalate between Russia and Ukraine" and as a result "we're seeing some classic defensive moves in markets with gold appreciating relatively rapidly."
US OUTLOOK: While keeping one eye on developments in Ukraine, investors, particularly in the U.S., will be assessing revised data on U.S. economic growth for the April-June quarter. With the crucial nonfarm payrolls report for August due next Friday, the U.S. data run over the coming week or so could help cement market expectations as to when the U.S. Federal Reserve will start raising interest rates.
ASIA'S DAY: The mood in Asia earlier wasn't too bright, with the Nikkei 225, the benchmark for the Tokyo Stock Exchange, closing down 0.5 percent. Hong Kong's Hang Seng fell 0.7 percent while South Korea's Kospi rose 0.04 percent. Sydney's S&P/ASX 200 fell 0.5 percent. Markets in Thailand and the Philippines fell but Singapore shares rose.
JAPAN POLITICS: The big event coming up in Asia is likely to be Prime Minister Shinzo Abe's Cabinet changes next week. The appointments could signal what's in store for his so-called "Abenomics" policies that have helped Japan's economic revival and stock prices. The policies are believed to have helped the yen weaken and prices to rise in Japan, curbing the negative spiral of deflation.