Economy

Is the Russia-Ukraine Scare Already Ending?

Before getting too excited about the end of tensions, one must understand that the Russian ambitions in Crimea and the Ukraine will not likely disappear overnight. Still, world markets recovered handily on Tuesday after Vladimir Putin ended the so-called military exercise and sent Russian forces back to their bases. What remains unclear is the status of troops that are already in Crimea.

If the markets continue to interpret the lack of further actions as a true reversal, then the MICEX stock market in Russia may continue its recovery. That would take assets out of the safe havens, like bonds, the yen, gold and other go-to safety trades.

Russia’s MICEX was up about 5% on Tuesday, after having seen a double-digit drop on Monday when it appeared as though tensions were likely to escalate. The DAX in Germany was up 1.75% in Tuesday mid-day trading.

Gold had been riding high as international investors often flock to the shiny yellow metal in times of geopolitical uncertainty. The metal was down almost 1% at $1,338 per ounce.

The iShares MSCI Emerging Markets (NYSEMKT: EEM) fell almost 1.8% to $38.78 on Monday, and that drop may see about half of its losses from the prior $39.48 close made up on Tuesday morning.

We would also look for bond yields to rise off their levels of 2.60% on the 10-year Treasury and 3.55% on the 30-year Treasury. Still, weren’t long-term interest rates supposed to rise handily in 2014? That 10-year yield was just above 3% at the close of 2013.

It would seem unwise to believe that an end of military exercises is a formal end of the conflict. Crimea likely will remain a source of tension, which may not disappear in one day — nor just because markets have tried to normalize in a single trading session.

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