Global Markets

Bears are back, fearful of world events

23 July, 2014 | Posted By: Oren Laurent

By Oren Laurent
President, Banc De Binary

Global stocks and indices are responding to a week of dire geopolitical headlines. At the end of the last trading week, European markets were on their way down, following their American and Asian counterparts. The bears are now back in the picture.
Last week, a Malaysian Airlines passenger plane was shot down over Eastern Ukraine, with Russian and Ukrainian factions blaming each other for the death of all 298 people on board. This happened as Israel began its ground invasion on Gaza, hoping to put a stop to the rocket and tunnel attacks of the terrorist group Hamas, and as the Islamic State continued fighting across Iraq and Syria, now expelling Christians from the northern Iraqi town of Mosul.
The air disaster increased tensions that have been long bubbling up and raised the prospect that the EU and US will impose yet further sanctions on Russia, as they push for an end to the crisis. Although Russian President Putin has repeatedly denied his involvement in the fighting, US President Obama has insisted that the civil war in Ukraine is facilitated by Russian supports for separatists. Remember that Russia is Europe’s single largest energy supplier and an important trade partner. Combined with the uncertainty in the Middle East, which also threatens global stability, investors started to sell off.
European equities fell on Thursday, and by mid-morning on Friday, London’s FTSE 100 was down 0.47%, the CAC sank 0.08% in Paris, and the DAX in Frankfurt lost 0.75%. The MICEX in Moscow was worst affected, down 1.32%, while the currency, the ruble, lost value against the dollar and the euro. German 10-year bonds closed the week at a record low.
The Ukrainian crises doesn’t seem to be drawing to a near end. Monday’s reported assault by Ukrainian tanks on the rebel-controlled Donetsk marked the first major violent incident since the airliner was shot down, serving as a further dampener on sentiment, and leading to calls for further sanctions. Travel and leisure industries have also taken a wide hit; the longer the various conflicts continue, the longer term the impact on tourism will be across Eastern Europe and the Middle East.
After the European markets reacted, the knock-on effect was predictably felt in Asia. As is common during times of crisis, forex traders turned to the Japanese yen. Traders pushed up the currency in Tokyo, thus pushing down the value of the country’s export orientated companies. As the yen surged against all of its major peers, gold also rose the most in 4 weeks with investors keen to seek out the security that it offers.
For short term binary options traders, the present situation affords a plethora of opportunities. The politics behind scenes are far more complicated however. As the US and other superpowers press for peaceful and democratic solutions, it is hard to judge just how long fighting can and will continue. Indeed the volatility in the markets reflects the very fact that we cannot always logically anticipate the intentions and strategies of rebel groups. Investors will be best refraining from making long term calculations just yet.