Dollars and Sense: Markets hinge on Putin's whims

Manic Monday. The escalating conflict between Russia and Ukraine elevated geopolitical risk and made the markets sensitive to the news cycle this week. On Monday, for example, traders scrambled for safety, and the markets fell significantly. Investors fled to so-called safe-haven assets such as U.S. government bonds. That move drove the yield on the benchmark 10-year Treasury note down to 2.61 percent, more than four-tenths of a percent lower than at the beginning of the year. It’s perhaps no surprise that the Russian market was the hardest-hit. Russia’s benchmark stock index fell as much as 11 percent Monday—its biggest one-day loss since February 2009. The hit on the Russian markets might have made President Vladimir Putin aware that Russians didn’t want war, either.

Tuesday turnaround. The markets gained back all of Monday’s losses and more on Tuesday. Tensions in Ukraine eased a bit when Putin said there was “no need yet” to increase his country’s military presence there. Putin’s decision to end military exercises in the region and send Russian troops back to their bases helped ease fears in global financial markets. The U.S. decision to put together a $1 billion loan package for the Ukraine also reduced fears of a financial crisis in the country.

A back seat. Developments in Ukraine caused a fairly busy week of economic news to take a back seat. The European Central Bank met this week, and U.S. Labor Department released the latest unemployment numbers Friday. Employers added 175,000 jobs to their payrolls last month after creating 129,000 new positions in January. The troubling part of the report was that the unemployment rate actually rose to 6.7 percent.

Mixed retail news. Retail giant Staples dropped 15 percent after it missed both earnings and revenue targets and said it was closing 225 stores. The Labor Department says productivity grew at an annual rate of 1.8 percent in the fourth quarter, a slowdown from 3.5-percent productivity growth in the third quarter. The slowdown could be a sign that workers are approaching their limits and companies will have to go on a hiring binge if they want to continue to grow.

The week ahead. News out of Ukraine will still likely unsettle the markets; if not for that, it could be a quiet week without much economic news. One of the few exceptions might be the retail sales report due on Thursday. Retail sales account for about 70 percent of all domestic economic activity, so the report will have an impact on the markets. Otherwise, all eyes will be on the geopolitical situation rather than economic fundamentals.