Good Morning.

Here is what is driving the markets today.

The Ukrainian and Russian crisis is back in the news, all for the wrong reasons – equity markets plunged yesterday following a deadline for pro-Russian separatists to surrender their weapons and their occupation of government buildings. The Ukrainian government has threatened “anti-terrorist” operations to reclaim official buildings occupied by protestors demanding greater regional autonomy. Russia on the other hand has demanded that Ukraine does nothing to escalate tensions, despite the fact that a number of western countries cautious and suspicious that Moscow is behind the protests. The US and EU are both considering tightening their sanctions on Russia in response. The situation remains precarious but, despite market turmoil, there remains hope that a diplomatic settlement will prevail. It appears that Russia’s intentions are to weaken Ukraine’s new government and to prevent the country from integrating with the EU and NATO, rather than to take over more territory after the annexation of Crimea. A transition to a more federal political system that guaranteed the integrity of the rest of Ukraine may be a satisfactory outcome for all sides. In the meantime, there is still little appetite for extensive sanctions, especially in the EU, and none at all for Western military intervention.

Meanwhile, recent speeches from officials indicate that the ECB has finally accepted that the threat of deflation in the euro-zone is real and further policy action is necessary. However, clarity on what shape, form and size is limited but what is certain is that it needs to decisive enough to prevent a sustained period of damagingly low inflation or even falling prices. Having been ever so dovish in recent months, ECB President Mario Draghi’s rhetoric tonic was further accentuated over this weekend’s IMF meetings as he acknowledged the deflationary effects of the strong euro, stating that “the strengthening of the exchange rate would require – to make our monetary policy stance equally accommodative – further monetary policy accommodation”. This message was reinforced in a speech board member Coeure, who added that the ECB might implement large-scale asset purchases, or quantitative easing (QE). We must remember that Germany’s Weidmann has also recently softened his previously strong opposition to QE. Having said this, actual QE might even be delayed or not come at all; what is certain is that all this recent QE chatter could simply represent co-ordinated to make the euro currency more competitive.

Across the Atlantic, US retail sales in March increased sharply, mainly on the back of weaker months in January and February following adverse weather conditions. All in all, first-quarter real consumption growth was probably a little stronger than what the market had anticipated with this number expected to continue its positive upward trend as markets seem to be anticipating stronger employments numbers and healthier income growth, thereby prompting an acceleration in real consumption growth in the second quarter of 2014.

Have a nice day!