Global equity markets reacted to news that tensions between Russia and Ukraine had flared up once again on Friday, with European equities particularly badly hit.
U.S. and European markets reacted to news that a Russian convoy of 90 aid trucks had entered Ukraine without permission from Kiev on Friday.
Ukraine’s security chief Valentyn Nalivaychenko said the crossing of the border marked a “direct invasion by Russia of Ukraine”, Reuters reported. The country called on its international partners to unite in a “decisive condemnation of illegal and aggressive actions”.
The Russian trucks are headed to the city of Luhansk in eastern Ukraine – a pro-Russian rebel stronghold.
By 13.30 London time, the French CAC 40 had lost 1 percent, the GermanDAX – thought to have the most exposure to the region – was down 0.7 percent, and Britain’s FTSE 100 was around 0.2 lower. The pan-EuropeanFTSEurofirst 300 was down 0.4 percent.
“Markets have a memory of what happened last week – things were going swimmingly and then everything was thrown off because of geopolitical developments,” said Jasper Lawler, market analyst, at CMC markets.
“The Germany DAX is particularly vulnerable because of its trade ties to Russia, and so is Europe as a whole.”
U.S. futures also took a turn for the worse, and shifted from indicating a slightly higher open to a lower one.
The price of Treasurys – seen as a safe haven – continued their move higher on Friday. The yield on benchmark 10-year Treasury notes—used to calculate mortgage rates and other consumer loans—was around 2.3927 percent, down from 2.407 percent on Thursday.
Before the Russian convoy made its move across the border, all eyes had been on U.S. Federal Reserve Chair Janet Yellen, who is due to speak at the Jackson Hole symposium of central bankers at 10:00 a.m. on Friday. Following some hawkish minutes from the Fed’s last policy meeting earlier this week, market watchers are keen to discover whether Yellen will alter her usual dovish tone.
Russian stocks hit
Lawler highlighted the potential for a “sharp snap-back” in spot gold, which was already trading 0.3 percent to $1,280 per ounce on Friday amid the news.
The price of Brent crude slipped slightly, however, to $102.41 per barrel, as ample global supply offset geopolitical concerns.
In Russia, stocks on the blue-chip MICEX index fell sharply on Friday, losing as much 1.75 percent. The Russian ruble also depreciated around 0.5 percent against the dollar.
Timothy Ash, head of emerging market research at Standard Bank, highlighted that Ukraine had said the Russian trucks would not be attacked, but said the move by Russia was still a “high risk operation”.
“(There’s a) not insignificant chance that trucks suffer damage someway along the two hour route to Luhansk and back, given that this is a war zone after all, and heavy fighting is still on going around Luhansk,” he said in a note.
“A question remains as to how Russia will react if the convoy comes under attack from any side – remember that civilian convoys have been hit around Luhansk in recent weeks. Obviously all this complicates matters ahead of Merkel’s visit to Kyiv this weekend, and then ahead of the Minsk summit next week.”