Friday, March 14, 2014
Nervousness about the unfolding Ukraine situation and
China-centric growth worries weighed overnight in the Asian and
European markets. This issue will likely be the dominant theme in
today's U.S. trading session as well, perhaps not as pronounced
as was the case on Thursday, but nevertheless a negative factor.
I don't think the Ukraine situation will get out of hand and
materially shift the current global macro picture. But markets
are understandably nervousness at the type of headlines coming
out of the region, ahead of the controversial Sunday referendum
that will likely seal the Crimean region's future.
Russian mobilization of its troops on the Ukrainian border and
reports of Ukraine seeking U.S. military help have stoked fears
that the thus far contained issue could very well morph into a
military conflict. At a minimum, growing rhetoric about sanctions
on Russia and Russian businesses are unnerving for investors as
sanctions would likely have negative effects on the fragile
global economic recovery, particularly in Europe.
Data out of China in recent days spotlights the fragility of the
global economy. Questions about China's growth outlook have been
with us for more than a year, but the issue had died down a bit
in the second half of 2013 following stabilization in economic
variables. Weaker than expected readings this week about
industrial production, retail sales and exports has brought the
issue back to the forefront.
There is some hope that the data weakness could be due to
distortions by the Lunar Year, which will clear up in the coming
months. But fears of vulnerabilities in the country's banking and
broader financial system and overall lack of confidence in the
integrity of official Chinese data add to these growth fears.
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Markets have given a pass to the recent run of soft U.S. economic
data, putting all the blame on this year's harsh winter. Many
investors are willing to do the same with China, for different
reasons. But the market's patience isn't limitless and will
likely shift if data fails to turn around in the coming months.
Director of Research