The issues in Ukraine are very complicated with regions such as the Crimea considering itself more Russian than Ukraine. For the Russian President Vladimir Putin keeping Ukraine within Russia’s sphere of influence is critical and the current game plan seems similar to what the Russia strategy was for Georgia in 2008.

Putin wants the situation resolved in favour of Russia – losing out to the West mean that Russia is boxed in by European allies.  However, it seems unlikely that the West will directly intervene. 
So far, the market has reserved judgement on the situation, waiting to see what Putin decides before factoring in the full impact of the crisis. In our view, it will only become a major issue for the broader global marketplace if Europe and the USA go head to head with Russia. At this stage it’s too early to say what cards they will play.

Moving to the US - markets will be focused on this week’s job report.  Economists have significantly reduced their expectations for new job creation to around 150,000 from the last few months of circa 200,000 job creation. The unemployment rate is expected to remain stable at 6.6%.

Other US numbers have been mixed - GDP growth has been downgraded to 2.4% but the durable goods number and personal consumption were encouraging and consumer confidence remains high. Even inflation has ticked up a bit.

Against this backdrop, it is unlikely that the US Federal Reserve will adjust the tapering of its quantitative easing program. Based on the current outlook, we still expect them to finish tapering by the end of 2014.

Despite the economic mixed picture in the US due to the weather, the S&P500 closed February at record highs, with NASDAQ and momentum stocks continuing to outperform value plays.
The Euro rallied against the US Dollar last week after inflation came in slightly higher than expected at 0.80%. There is some speculation that the European Central Bank could keep interest rates on hold when they meet this coming Thursday although we still expect that they will cut 10 basis points. This would mean that the interest rate for banks depositing money with the ECB could be negative.

Finally, a word on China, where the People’s Bank of China has failed to intervene in the declining Renminbi.

The falling currency is a planned policy decision, although the market remains unsure about the rationale.

Some believe it is to stamp out currency speculation and remove the assumption that the Renminbi is a one-way bet. Others believe it is an indication of deeper malaise in the Chinese economy. We believe this over complicates the situation and that it is part of an engineered policy, whose purpose remains unknown.