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Bear Trap? Bull Trap?


US stocks (sector performance) enjoyed a “risk off” session, supported by expectations that numerous upcoming Fed speeches lined up for this week might come on the dovish side (culminating with J. Powell’s speech on Wednesday). Sentiment was also bolstered by hopes that D. Trump will let something good come out of the G20 meeting and following signs of easing on the Italian situation. The S&P500 rallied +1.6% while the Nasdaq gained +2.3% in official hours. European indices posted similar gains with the Dax adding +1.5%. European banks were particularly strong with Deutsche Bank and Unicredit both rebounding 5%. EM markets traded higher as well (Diversified EM EMLC China CSI300 Russia) with the exception of Russia which dropped 2% after Ukrainian ships had a spat with Russia which ended with three of them being stopped with force and taken in custody after refusing to follow orders to stop their incursion in troubled but in the end Russian waters. Ukraine presented the incident as an aggression, mobilized reservists to deploy them on 10 border provinces and the President called for martial law warning of an imminent ground Russian invasion as he also prepares to go in front of voters. Russian Foreign Minister Lavrov blamed Kiev for what he described as a "provocation," adding that "Ukraine had undoubtedly hoped to get additional benefits from the situation, expecting the U.S. and Europe to blindly take the provocateurs’ side." RUB and Russian assets traded lower on the news although the escalation remained contained, internationally at least. Déjà vu all over again? Perhaps some market participants (or robots) expect new sanctions against Russia for defending its waters but the overwhelming feeling in Europe is a growing impatience towards the insistence on not dealing with Russia (or Iran) on the basis of teleguided sanctions that hurt Europe more than anybody else. If business as usual can continue and be justified with Saudi Arabia and baring more severe developments, the case could also be made that this dog bite should not be taken out of proportion. 

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