Markets Remain Surprisingly Calm as Tensions Mount Everywhere

It is surprising that the global markets are relatively calm. None of the major equities exchanges are in turmoil yet and the foreign exchange markets are equally unperturbed. To be sure, the dollar is significantly higher against the euro, the pound and the yen, but it is mainly stronger because of positive economic developments in the US and not geopolitical disruptions.

One would think that the Russia-Ukraine conflict would push the dollar much higher against all the major currencies, but it probably will stay close to current levels for the foreseeable future. The euro is expected to move below EUR/USD 1.30 during September and the pound is expected to fall below GBP/USD 1.64.

At this point the pound is the exception to the rule. Sterling is suffering from market worry that there is a chance the Scots will vote for independence. If the Scots do in fact vote for devolution, the pound could fall precipitously, perhaps even to under GBP/USD 1.50.

The Russia-Ukraine conflict remains in the talking and propaganda phase. President Vladimir Putin has threatened to advance troops to Kiev, which he claims can be accomplished in a matter of days. German Chancellor Angela Merkel in a speech over the weekend said that Germany will have to be part of severe sanctions against Russia and to accept resulting economic hardship in order to punish the Russians. She obviously expects Moscow to turn off the gas pipe this winter.

Now everyone is waiting for the outcome of the NATO meeting in Wales and for further sanctions by the Europeans and the Americans. Expectations are that NATO will establish a rapid deployment forces with forward positions in the Baltics and that new stiffer sanctions will be introduced this coming weekend.

The sanctions in place now have already caused some serious problems for the oligarchs. They can’t get more of their money into Europe or the US. and they can’t travel to Europe and the US to be with the money they have there. As a result realtors in Miami and in the Mediterranean are reporting that Russian real estate is being rented out at relatively low prices. Perhaps this will induce some of the Oligarchs to take out a contract against Putin, as one of my New York currency trader contracts suggested.