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The retaliation begins

Published Thursday, August 7th, 2014

Do you know that feeling when you are coming to the end of a concert and you are trying to judge the best moment to leave? If you leave too early you may miss the best part, but if you leave too late the exits are swamped and you miss the train.

The stock markets have that feeling about them at the moment and if they make a break for the exits a whole bunch of other risk assets will go with them. Russia is the factor that could turn nervousness into panic and very soon.

Nato says that Russia has amassed 20,000 battle-ready troops at the Ukrainian border and could be preparing to invade under the pretext of a humanitarian mission. The Polish Prime Minister believes that the threat of Russian military intervention is “higher than it was several days ago”.

The economic war has also escalated with Russia banning food imports from the U.S. and fruit and vegetable imports from Europe. This will pile huge pressure on already stretched European budgets and banks who have loaned out to the agricultural sector. The Russian retaliation came on a day when Italy revealed that it had fallen into recession with a GDP decline of 0.2% in 2Q following -0.1% in 1Q. Germany experienced a 3.2% fall in industrial orders in June. The storm clouds are darkening!

European stock markets closed lower and the U.S. indices were broadly unchanged. Safe havens were in demand and the dollar strengthened. Brent closed virtually unchanged on the day, but WTI lost another 46 cts/bbl despite a 1.8 million bbl draw reported in the weekly EIA stock figures.

to read the rest of the report, please click here 

Posted by David Hufton