2022-10-31

Markets around the world were firm this morning, as investors eyed developments in Ukraine. The FTSE 100 ended the day up around 0.6 percent, while Germany’s DAX and France’s CAC 40 each added around 1 percent. Elsewhere, Asian markets were mostly higher as well, with Japan’s Nikkei and Hong Kong’s Hang Seng each ending the day in the green. All of the region’s major indexes finished the day in the green.

Europe’s mid-day stock market rallies came after a volatile session on Monday, with investors cautious ahead of the first round of negotiations between Russia and the West in days. The geopolitical backdrop was key as investors weighed the implications of a possible diplomatic breakthrough in Ukraine.

What we are hearing

The United States and the European Union have announced plans to hold a series of emergency meetings in the coming days to discuss the crisis in Ukraine. The White House said Secretary of State John Kerry will travel to Germany, France and Italy for talks, while the EU foreign policy chief, Federica Mogherini, is heading to Moscow for urgent meetings. There were reports that the Russian military had opened fire on Ukrainian positions near the village of Debaltseve, which both Kiev and the West have denied. The U.S. and EU have both imposed sanctions on Russia over its annexation of Crimea and its support for rebels fighting the government in eastern Ukraine. The Crimea situation has worsened since the weekend, with residents reporting that Russian forces are now heavily deployed in the peninsula. The EU has threatened further sanctions against Moscow, while the US has sent additional troops to Poland and the Czech Republic.

EU diplomatic efforts to resolve the Ukraine crisis

The EU has declared that it will not recognize the referendum in Crimea which was held on self-determination day and which was widely seen as an illegal act. The EU has also threatened further sanctions against Russia, and has called an emergency meeting of the European Council to be held on Monday to discuss the situation. The EU summit begins on Tuesday and concludes on Thursday, with European Council President Herman Van Rompuy saying, “We will adopt a decision on Monday that will send a clear message to Moscow and the world that there will be consequences for this if it does not change course.” Meanwhile, the G7 has suspended Russia’s membership in the Group, with Canada and the UK also announcing that they will host separate “working groups” aimed at improving economic ties with Russia. On the ground in eastern Ukraine, the situation remains tense. Pro-Russian rebels have accused the Ukrainian military of launching a large-scale offensive in the area.

Will Russia and the West be able to reach a deal?

Diplomatic efforts have already overcome many obstacles, but it remains to be seen whether a deal can be reached. Russia has already indicated that it is willing to put forward a ceasefire plan, and will discuss this with the OSCE on Monday. However, the U.S. and EU have made it clear that they will only consider a ceasefire plan that is acceptable to them. Both the West and Russia have also said that they will abide by the Minsk agreements, though it remains unclear whether the rebels are willing to do so as well. Will the talks in Minsk produce any kind of result? It is unclear, but the negotiations do at least mark a chance for peace in eastern Ukraine.

What impact could a deal have on the markets?

It is too early to say whether a deal in Minsk will have an impact on the markets. There is a possibility that investors will become more optimistic about the prospects for an agreement, but it is also possible that they will become more jaded as well, especially if the ceasefire in eastern Ukraine stalls. If a deal is reached, it will be very important to see how it is implemented on the ground. If the separatists are fully implementing the deal, then it will be a positive for the markets. However, if the opposite happens, then it could lead to increased volatility.

How to play the markets this week

Investors have been speculating about the impact of a possible deal between Russia and the West since the start of the week, so they will be keeping a close eye on developments in Ukraine this weekend. On Monday, the focus will be on whether a ceasefire can be brokered in eastern Ukraine, and what impact this could have on the markets. The focus will then switch to the EU summit, where EU leaders will discuss the situation in Ukraine and what steps should be taken next. The UK is also due to hold a referendum on EU membership on Thursday, which could add to the volatility of the week’s events.

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