The market continues to face a double threat as the crisis in Ukraine persists and fresh fears of a hard landing in China take centre stage. Despite these concerns, the market surprised us over the last 2 week by holding its nerve and not falling nearly as far as expected.

Recent strong economic numbers may be helping to keep markets stable, with the US, Europe and even Japan demonstrating growth momentum.   Australia has also had better employment and GDP numbers.  It is also possible that the market is being kept in line by stronger reported earnings and the looming presence of fund managers and investors, who are waiting patiently to buy the dips.

An alternative explanation is that markets are complacent and global equity prices have further to fall – with "sell in May and go away" possibly being brought forward to April.

We do believe that China will experience an economic slowdown but there are question marks over how dramatic it will be. There are signs the government is willing to add stimulus to the economy to meet their 7.5% growth goal – the recent announcement to widen the band on the Yuan to 2% is an example of this, as is lower official interest rates. This should help limit the impact of any slowdown.
In terms of Ukraine, we don’t believe Russia or the West will allow events to spiral out of control and the most likely outcome is a prolonged diplomatic stalemate. However, there is ample scope for the crisis to undermine sentiment further in the coming weeks.

In particular, an escalating trade war between Russia and the West could cause concerns.  The US and the EU have announced additional limited and targeted sanctions against Russia following the contentious referendum in Crimea.

It appears that Russians have also been transferring large amounts of gold, bonds and cash out of the West in case these assets are frozen. That said, such transfers are not expected to have a huge impact on markets – unless they choose to sell rather than transfer.

Looking at other markets, so far there has been little impact on the price of industrial commodities -notably crude oil. We believe the potential disruption to Russian supply is offsetting fears about the impact of China's slowdown on demand for oil.  Copper and Iron ore prices have been affected by the recent change in sentiment towards China.

Russia and China aside, the more dramatic moves in markets recently have been in the prices of safe haven assets, notably gold, but also government bonds and the YEN.

The rising YEN explains why Japanese equities have been the main casualty among developed markets as the stronger currency is causing the Nikkei to fall as the earning of Japanese companies are linked to YEN performance.