All eyes will be on Russia this morning for reaction to yesterday’s ‘yes’ vote in Crimea on succession from Ukraine.
The rising tension ahead of yesterday’s vote overcame worries about the Chinese economy on Friday and markets around the world closed lower and worried.
Over the week US shares fell 2%, Eurozone shares fell 3.3%, Japanese shares fell 6.2%, Chinese shares fell 2.6% and Australian shares fell 2.4%.
Oil and gold rose Friday. Oil was lower over the week, gold higher. Iron ore and copper also weakened because of events in China.
Moves by Russia to accept the vote and annexe Crimea could trigger sanctions from countries in Europe and the US, and will also see markets grow increasingly nervous.
But Britain won’t be enthusiastic because of BP’s huge investment in the Russian oil industry and the presence of numerous Russian billionaires in London.
Asian markets will be the first to react to the vote in Crimea. A ‘yes’ vote with no further action by Russia won’t worry markets too much at first.
But being closer to the events in Ukraine, the reaction tonight of European markets will be watched more closely.
Russia is not trusted and it wouldn’t surprise if the Russian rouble and stockmarket again sell-off heavily, adding to the tens of billions of dollars in losses already taken and the billions spent trying to defend the rouble against the selling pressure.
But any sign Russia is preparing for military action beyond the Crimea to other predominantly Russian-speaking portions of Ukraine, or tougher-than-expected Western sanctions and a harsh response from Moscow, could very well trigger a sell-off.
Our market will start the week on a softer note – with the share price index down 18 points.
And then the Japanese market will open and most likely weaken until investors can see what’s happening in Russia and Ukraine.
Nervous, volatile trading will be the order of the day, especially if the vote is accompanied by rising tensions and violence.
Markets are already adjusting to the movement of billions of dollars by the Russian government and banks out of Western banks and markets.
In addition Russian holdings of US government bonds have been moved out of US and other major banks.
The Financial Times and other media groups reported at the weekend that the mass movement of these billions of dollars was based on fears that the vote and Russian acceptance will lead to asset freezes and other financial sanctions.
The FT said that two big Russian banks, as well as oil, mining and gas groups sent money back to Russia last week from the west.
If sanctions are announced by the US and other major economies, Australia has said it will follow.
There are a number of Russian companies with investments in this country, especially in mining and resources.
The Russian rouble and the Ukraine hryvnia both plunged since the crisis.
The rouble hit 36.7 to the dollar on Friday, near to its weakest rate on record. Russia’s MICEX stock index fell 0.7% on Friday, contributing to a 7.4% weekly loss and a drop of more than 14% since the beginning of March.
The Aussie dollar remained above 90 USc, despite the weak news flow from China, as some investors chose Aussie dollar investments as a safe haven during the current problems.
US dollar assets were again the preferred haven for nervy investors and this was a big reason US bond yields fell sharply last week from around 2.81% to 2.65%.
Yields on Russia’s 10-year government bonds rose close to 9% on Friday, compared with less than 8% in January.
Figures from the Federal Reserve Bank of New York suggested that Russia’s central bank was also reducing its vulnerability to potential sanctions.
The weekly data of who owns US Treasury securities, showed a drop of $US105 billion in Treasuries held by foreign institutions for the week ending March 12.
Russia held $138.6 billion in US government debt at the end of December, according to the US Treasury.
Media reports suggested the bonds had been moved to third parties to hold to try and avoid any financial sanctions.
Reports continued of foreign investors selling Russian assets (one of the reasons why the Russian sharemarket and the rouble have fallen so heavily) in the past three weeks.
The Financial Times reported that traders and bankers said US banks had been big sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $US75 billion of exposure to Russia. Citigroup has the largest single exposure with around $US10 billion of banking assets in a Russian subsidiary.
The business relationship with Russia is worth around $US1.6 billion, according to the the Australian Foreign Affairs department.
"Two-way merchandise trade between Australia and Russia was worth $1.662 billion in 2012,” the department said in a briefing note on its website.
"Russia is Australia’s 32nd largest merchandise trading partner. Australian merchandise exports to Russia in 2012 were worth $797 million and imports from Russia totalled $865 million. Australian exports to Russia in 2012 included meat (particularly beef), hides and skins, and live animals.
"Crude petroleum dominated Australian imports from Russia in the same period, which also included fertilisers, electrical machinery and parts.
"Australia’s services exports to Russia in 2012 were valued at $133 million and imports of services from Russia were valued at $89 million. Services exports are largely in personal travel and education, both of which are expanding."
