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European Indices Drop as US and EU Announce New Russia Sanctions
July 17, 2014 9:47 amVideo
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European stocks markets fell on Thursday in response to a move by the US to place a comprehensive set of sanctions on the Russian economy in an attempt to exert more pressure on the country over the crisis in Ukraine. The Russian Micex dropped by almost 3%, while the Rouble currency is down 0.8% at Rb33.84 versus the US dollar. The Stoxx Europe 600 Index lost 0.6%, the FTSE100 dropped 0.4% and the DAX slid down 0.5%.
Both the US and the European Union imposed sanctions on Russian banks, energy companies and defence firms in the latest attempt to pressure the country in regards to its involvement in Ukraine. However, while the US revealed the names of the companies it placed tougher sanctions on, the EU did not do so. Russia has threatened to retaliate, though it did not specify details.
Traders are expressing hesitation on the back of the new sanctions, nervous that they could trigger an escalation in geopolitical tensions between the West and Russia, because of the possibility that this latest round of sanctions could be enough to tip the Russian economy into a recession. Russian president Vladimir Putin called the new sanctions “aggressive” and warned they would have “a boomerang effect” that would take Russia-US relations “to a dead end.”
Geopolitics aside, traders are still absorbing comments by Federal Reserve chief Janet Yellen in her testimony to Congress, which ended yesterday. She was dovish on the US economy on the whole, stressing low rates for now and not hinting on possible rate hikes. She also said that current asset valuations aren’t out of line with historical norms, after stating a day earlier that prices for some stocks – particularly in the fields of tech and biotech – were stretched. US stock futures were trading lower ahead of the open on Wall Street. Later today, we have earnings from Morgan Stanley, Google and IBM.
Closer to home, the euro zone’s inflation rate has been confirmed unchanged at 0.5% in June. Though this is in line with expectations, it may still place pressure on the ECB to consider bolder policy initiatives, such as bond buying. The final CPI numbers show that month-on-month prices rose 0.1% in June, after dropping 0.1% in May, but the annual rate remained stuck well below the ECB’s target of inflation, close to but below 2%.
However, the Euro held its ground following the data, staying steady against the US dollar at $1.3535. The Japanese yen gained due to its safe-haven label, trading at 101.45 to USD. Gold also rose on its safe-haven characteristics, climbing above $1,300 an ounce.
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