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Ukraine Tensions Zap Global Equities


Today's financial recap and Monday's financial outlook.

Risk assets took a beating Friday as relations between Ukraine and Russia took a turn for the worse.

In the early morning, Ukraine's government threatened to blockade pro-Russian militants in Slovyansk. Later in the day, its deputy foreign minister said it was in danger of facing a Russian invasion in eastern Ukraine.

Russia also unexpectedly raised its main interest rate by 50 basis points to fight inflation; it also announced a bank loan facility to inject funds into the economy because of illiquidity in the nation's bond market.

Ratings agency Standard & Poor's lowered Russia's credit rating to BBB-, and warned of potential further cuts.

Overseas, the Russian market predictably took a significant dip, as did most emerging markets. Germany was also well in the red on account of its economic ties to Russia.

The tension drove selling in US markets all day long, with the S&P 500 (INDEXSP:.INX) finishing down 0.8% at 1834.41.

Taking a deeper dive into US markets, the iShares NASDAQ Biotechnology Index ETF (NASDAQ:IBB) that led the market in 2013 and early 2014 was off by 2.5%, while the Global X Social Media ETF (NASDAQ:SOCL) dropped 5.3%.

There was also significant relative weakness in the small-cap Russell 2000 (INDEXRUSSELL:RUT).

At least some of that money flowed into Apple (NASDAQ:AAPL), which managed to squeeze into the green after a down open. Fellow large-cap tech leader Microsoft (NASDAQ:MSFT) also got a small boost, aided by its strong earnings report from yesterday.

However, the biggest beneficiary of the flight to safety was the the Utilities SPDR ETF (NYSEARCA:XLU), which rose 1.2%, putting it up 13.5% for the year. (NASDAQ:AMZN) fell 9.9% to $303.83 after reporting a first-quarter earnings miss Thursday after the close, which set the tone for high-beta momentum stocks today. Key former highfliers such as FireEye (NASDAQ:FEYE) and Splunk (NASDAQ:SPLK) suffered heavy losses.

We're now about halfway through earnings season, and on Friday, FactSet Research Systems (NYSE:FDS) said that 73% of S&P 500 companies beat consensus earnings estimates, which is in line with historical averages. However, just 53% of companies exceeded revenue forecasts.

In economics, the final April reading of the University of Michigan Consumer Sentiment survey came in at 84.1, which was ahead of the 83.0 consensus economist forecast.

Tomorrow's Financial Outlook

At 10:00 a.m. ET, Pending Home Sales for March will be released.

Quite a few earnings reports will be issued. Major names include Ecolab (NYSE:ECL), National-Oilwell Varco (NYSE:NOV), and Suncor Energy (NYSE:SU).

But at this point, near-term trading will remain dependent upon geopolitics, as the markets have tended to rock back and forth based upon activity in Ukraine.

With the S&P 500 still close to all-time highs while fundamentals are basically mediocre, the trend toward safety and away from risk could continue should we not see progress in Ukraine over the weekend.  

Twitter: @Minyanville

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No positions in stocks mentioned.

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