There is always a price to pay when world leaders whimp a major decision. The likes of President Obama, the EU leaders and Ed Miliband may rue the day they backed off from a confrontation with Syria. From that day Putin, maybe erroneously so, felt that he was in the driving seat internationally. He clearly feels very comfortable about flexing his muscles when the urge grabs him. Putin offers a greater threat to global peace than he did 15 years ago! – a man not to be trifled with.
John Kerry has tried to promote his statesmanlike qualities – not over convincingly I’m afraid. Frankly there is not much he can say. As Putin knows, possession is nine tenths of the law. Russia has a foothold in the Crimea; the Crimea supports Putin. Russia dominates the Black Sea strategically. Putin controls 38% of the EU’s gas supply. He’s mates with Syria and Iran and therefore has a say in the supply of oil. He also controls the supply of wheat and therefore the price of bread. Of course Russia needs Dollars and the ability to export.
However Putin has never been known as a fully paid up member of philanthropy, by putting the welfare of his people and peace in the world before his own ego. I think this impasse will be dragged out longer than we think, regardless of any UN resolutions, being banished from the G7, any economic sanctions or diplomatic initiatives. The problem with an impasse like this is that it has a domino effect on other economies. Oil & gas prices go up – They have – gas by 3%. Wheat prices go up – they have – by circa 4%. Equity prices dip globally. They have – Europe and UK by about 1% and the DOW futures are easier by 100 points. Russian equities have taken some stick – Gazpron -15%, Sberbank -14% and Lukoil -12% in early skirmishes.
If this stand-off were to be prolonged with Russia adopting an intransigent position, growth around the world could be badly affected particularly the EU, which is trying had to crawl out of recession.
One gets the impression that stock market reverses could be contained. This pull-back in some ways is healthy. A buying opportunity could manifest itself. At 9.40am the FTSE 100 was down 67 at 6742, having early on lost 92 points. Drug, mining (apart from gold mining) and service operators have been hit harder than others in places.
My greatest worry for a prolonged diplomatic impasse is that it could wreck the pipeline of IPOS – so necessary to illustrate the improving economic conditions which have recently manifested itself in the UK.
Yields on some 10-year bonds have fallen – a sign of flight to quality – US 2.61%, UK 2.66% and Germany 1.58%
These are David Buik’s personal views
Twitter – @truemagic68
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