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June 27, 2017

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World markets tumble over Ukraine, Russia credit rating

BEIJING/HONG KONG -- Global stocks tumbled Friday after tensions over Ukraine mounted and Standard & Poor's cut Russia's credit rating, warning of capital flight and risks to investment due to the crisis.

Germany's Dax fell 0.9 percent to 9,460.39 while France's CAC-40 shed 0.5 percent to 4,458.16 in early trading. Russia's Micex gave up 0.9 percent to 1,288.40.

Markets were on edge after Ukraine launched an operation to drive pro-Russian insurgents out of occupied buildings in the country's east. Moscow responded by announcing military exercises near Ukraine's border.

Later U.S. Secretary of State John Kerry accused Russia of a "full-throated effort to actively sabotage the democratic process through gross external intimidation" and described the military exercises as "threatening."

He also said Moscow had broken an agreement signed last week in Geneva aimed at easing tensions, adding that refusal to take any steps to end the crisis would "not just be a grave mistake, it will be an expensive mistake."

The veteran diplomat added "we are ready to act" as Washington tees up new economic sanctions against Moscow.

"Escalating tensions in Ukraine only serve to worsen sentiment," said Desmond Chua of CMC Markets in a report. "As the two nations inch ever closer to war, an outbreak will send investors fleeing to safe havens."

S&P's decision to cut Russia's rating from BBB to BBB-, its first such reduction in five years, was the most tangible economic result so far of Moscow's policy toward Ukraine. The rating is one step above speculative or non-investment grade.

S&P said it took the step because the tense situation "could see additional significant outflows of both domestic and foreign capital from the Russian economy."

On Wall Street, the future for the Dow Jones industrial average was down 0.3 percent while that for the Standard & Poor's 500 index was off 0.2 percent in pre-market trading on the Chicago Board of Trade.

Earlier, solid earnings from Apple, Caterpillar and some other U.S. companies helped to reassure markets. But relief was mixed with concern about higher U.S. unemployment claims, which dampened enthusiasm about gains in durable goods orders.

The number of people seeking U.S. unemployment benefits jumped 24,000 to a seasonally adjusted 329,000 last week while durable goods orders rose 2.6 percent in March. That helped to recover some ground lost to declines in December and January.

"Durable goods are grinding their way back to pre-December norms but that's about it," DBS Group said in a report.

Asian markets were mostly lower on Friday, with another upbeat lead from Wall Street overshadowed by concerns about the Ukraine crisis.

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