A look at the day ahead in markets from Sujata Rao

It was perhaps inevitable that Vladimir Putin would resort to the playbook similar to the one employed during the 2014 Crimea annexation, recognising as independent two breakaway Ukrainian regions then sending in the tanks.

As Western powers debate what kind of sanctions to impose, markets’ reaction is predictable too. Asian stocks teed off with the worst session so far this year, Brent crude futures have jumped above $97 a barrel, European shares are opening lower and Wall Street futures are down as much as 2.5%.

The rouble has hurtled below 80 against the dollar.

There is also a dash for the usual safe-havens — the bond rally has sent 10-year Treasury yields down 7 basis points while the Swiss franc and gold are at nearly one-month highs.

But markets don’t really seem to be in a “sell anything risky” mode.

For one, a senior U.S. official said the deployment of Russian troops to the breakaway enclaves did not merit the harshest sanctions. Any measures should for now stop short of cutting off Russia’s access to international payments systems.

Second, money markets have priced out chances of a 50 basis-point rate hike by the Federal Reserve in March. More policy easing may be on its way in China too; Finance Minister Liu Kun flagged bigger tax and fee cuts to support the economy.

Finally, remember, markets had more or less already priced a Russian incursion into the two eastern Ukrainian provinces; Goldman Sachs estimates U.S. and European stocks already carried discounts of 5% and 8% respectively. Worst case? Further 6%-9% falls. But we are not there – yet.

Away from the Russia-Ukraine conflict, the earnings season continues. HSBC brought forward its profitability target by a year and more than doubled annual profits. Earnings from retailers Macy’s and Home Depot will show us what kind of mood the U.S. consumer is in; following blowout retail sales data last week, the figures could prove reassuring.

(Graphic: Ukraine crisis Conflict incidents in Ukraine, https://graphics.reuters.com/RUSSIA-UKRAINE/gkplgjnonvb/graphic.jpg)

Key developments that should provide more direction to markets on Tuesday:

-Norway Central Bank Governor Oystein Olsen

-German Ifo

-Fed: Atlanta President Raphael Bostic, Cleveland President Loretta Mester

-Philadelphia Fed Non-manufacturing Business Outlook Survey for February.

-U.S. 2-year note auction

-U.S. earnings: Home Depot, Medtronic, Macy’s

-European earnings: Endesa, HSBC, Hargreaves Lansdown, Accor, Antofagasta, Intercontinental hotels, Norsk Hydro, Coca Cola,

-Emerging market central banks:   Hungary

(Reporting by Sujata Rao; editing by Karin Strohecker)

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