The outcome of today’s Crimean referendum will make little difference to global markets. The majority of the population on this peninsula are ethnic Russian and so the result was a foregone conclusion. Market tone for the week however will be set by the reactions to today’s ballot.
The Ukraine, Europe and the US have all condemned the referendum as illegal and will refuse to recognize its outcome. Russia is the only county that intends to give validity to the referendum result.
An escalation of tensions is inevitable. The impact on the markets next week will be dictated by the extent of this escalation. There are two crucial elements to look out for.
Firstly, there will no doubt be sanctions imposed on Russia by Washington and others. The nature and magnitude of these sanctions will be important, will they be nominal in nature or will the US go so far as to attempt to curtail Russia’s Gas and Oil exports. The latter, apart from being an ‘own goal’, will yield an unpredictable reaction from Moscow and swiftly create a safe haven configuration in global assets.
Secondly, this referendum is designed to encourage a reaction from the ethnic Russian population in the eastern part of the Ukrainian ‘mainland’, should Moscow’s provocation work then this crises will rise to a whole new level.
Outside of the geopolitical risks that will form the narrative for next week the secondary drivers of the markets will be provided by the ‘Big 3’ Central Banks.
The US Federal Reserve will announce any interest rate changes on Thursday, although in reality none are anticipated. The real market moving event here is the potential for changes to pace of the Fed’s bond purchase program. There has been some talk of the Fed reducing the rate of tapering, a low inflation reading on Tuesday might just be the catalyst the need to do this.
Wednesday will give us a glimpse inside the minds of the Bank of England’s Governors. The minutes of the recent Monetary Policy Committee will be published and the markets will be looking for any deviation from the expected unanimous vote of all nine members to hold interest rates steady.
Europe however provides the key risk event tomorrow morning in the form of the Eurozone Consumer Price Index. Any reading below last months 0.8% will call into question the European Central Banks analysis of the inflation situation and most likely spark a robust Euro sell off.
To contact the reporter of this story: James Brennan at firstname.lastname@example.org