Market Commentary: Geopolitical risks become the markets’ driving factor

Undoubtedly the markets were driven yesterday by the escalation of the western’s response to the Ukrainian-Russian crisis and, later in the day by the crashing of a passenger airplane in Ukraine’s rebelling region.

During the US trading session it was also broadcasted that Israel sent ground forces into the Gaza strip.

The US and European leaders stepped up their efforts to more actively undermine the profitability of Russian companies so as to press Russia to contribute to the silencing of the pro-Russian activists that are becoming a growing threat for Ukraine.

Meanwhile, data confirmed yesterday that Russian growth is slipping with retail sales growing at the slowest pace in several years and disposable income surprising on the downside (-2.9% vs expectations of 3.5%). 

The rising geopolitical risks drove the demand for safer assets higher with some core European sovereigns touching record yield lows and the 10-year US Treasury falling below 2.5%.

The peripheral government bonds were also well bid and Spain actually placed a new issue at a record low rate. The rally of US government bonds was also supported by the uneven macro data. That is, the unemployment claims for the previous week unexpectedly fell to 302k (vs expectations of 31k) whereas the housing data failed to meet analysts’ consensus forecasts.

Building permits and housing starts fell in June comparing to May although some commentators pointed to the high contribution that the Southern region had to fall in housing starts as indicative of lot shortages following harsh weather conditions; in addition, the market reaction is likely to be muted by the good house builders’ confidence readings.   

Although Asian stocks were hampered by the general rise in aversion towards risky assets, the Chinese equities benefited from increasing expectations of more property supporting measures. Already a number of local leaders eased home purchases policies but as data showed that property prices fell in a record number of cities in June (55 out of 70), such decisions are expected to proliferate.

In the emerging market space, we note that the Turkish central bank delivered another interest rate cut (50 basis points) in a bid to support growth; as a reminder, at the beginning of the year, it surprisingly increased its key rate in order to support the currency shattered by the broader sell off in emerging market assets. 

In contrast, the Egypt’s Central Bank unexpectedly raised interest rates in order to arrest growing inflation in the aftermath of a reduction in fuel subsidies.

In India in turn, the authorities are now  focusing on structural reforms as they appear decided to swiftly meet investors’ (fairly high) expectations; as such, they announced that they are starting the process for selling its stake in the country’s biggest energy explorer (Oil & Natural Gas Corp). This should be the first of a series of asset sales meant to reduce the budget deficit and improve the business climate in the country. 

Today the markets will likely be watching to the Western’s reaction to the airplane tragedy in Ukraine and earnings releases, particularly as the day will be poor in statistics; except for the US consumer confidence survey  nothing else deemed important is due to be published.

This article was issued by Calamatta Cuschieri, visit  for more information.

The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

More in Business Comment