European markets rebound sharply as Ukraine fears recede

August 18, 2014, 10:29 AM UTC
Foreign Ministers Meet Over Ukraine Crisis
BERLIN, GERMANY - AUGUST 17: (From L to R) French Foreign Minister Laurent Fabius, Ukrainian Foreign Minister Pavlo Klimkin, German Foreign Minister Frank-Walter Steinmeier and Russian Foreign Minister Sergey Lavrov meet to discuss the ongoing conflict in eastern Ukraine at Villa Borsig on August 17, 2014 in Berlin, Germany. The four men are meeting as at least one confirmed incursion by military vehicles from Russian soil into Ukraine and the statement by a separatist leader that Russia had supplied separatists fighting in Ukraine with heavy tanks, training and personnel have heightened tension as well as the fears of a possible imminent Russian invasion. (Photo by Sean Gallup/Getty Images)
Sean Gallup Getty Images

European stock markets rebounded sharply Monday, while the price of oil and ‘safe-haven’ German and U.S. Treasury bonds fell back, as fears of a direct conflict between Russian and Ukrainian forces receded.

Claims by the Ukrainian President Petro Poroshenko that Ukrainian artillery had engaged and partially destroyed a column of Russian armor on Thursday night had sent global markets into a tailspin on Friday, but the weekend passed without any independent verification, and Russian Foreign Minister Sergey Lavrov dismissed them Monday as a “fantasy” at a televised news conference.

By mid-morning, the German DAX index, which has been particularly sensitive to developments in the crisis due to German business exposure to Russia, had recovered nearly all its losses from late Friday and was up 1.3%. The U.K.’s FTSE100 index was likewise up 0.5% while the Russian MICEX index was up 0.2%.

By contrast, the price of Brent crude oil, the benchmark blend for Europe, had fallen to a 14-month low earlier and was only fractionally off that at $102.28 a barrel. U.S. and German government bonds, the traditional recipients of ‘safe-haven’ flows, also fell back, their yields rising by 2 and 4 basis points respectively. A basis point is one hundredth of a percentage point. German yields in particular remain close to all-time lows, with the 10-year bond yielding only 0.99%.

Lavrov’s press conference followed a four-way meeting with his counterparts from Ukraine, France and Germany. The meeting failed to bring any progress on agreeing a general ceasefire to a conflict which has already claimed 2,100 lives, and which is increasingly hitting the civilian population of the remaining rebel-held areas. However, he said that a Russian convoy of humanitarian aid was now free to proceed to the rebel-held city of Luhansk.

“Everything has been agreed with the Ukrainian authorities and with the International Committee of the Red Cross,” Lavrov said.

The convoy has been held up at the border since Friday, due to Ukrainian fears that it would be used as cover to ship in military supplies and reinforcements to the pro-Russian rebels.

Despite the improvement in market sentiment, fighting around the cities of Luhansk and Donetsk remains intense and anecdotal evidence of Russian support for the rebels continues to build up. At a weekend press conference, the newly-installed military commander of the self-styled Donetsk People’s Republic, Alexander Zakharchenko, told a press conference that his forces had received reinforcements of 1,200 fighters trained “on the territory of the Russian Federation,” along with 150 armored vehicles, of which 30 were tanks. He didn’t say where the armor came from.

The U.S. and E.U. have both imposed sanctions on Russian individuals, companies and economic sectors in response to Russia’s annexation of Crimea and its ongoing support of the rebels.

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