Russia – Ukraine conflict deteriorates

Despite the recent peace deal brokered by German chancellor Angela Merkel and French president Francois Hollande with Russian president Vladimir Putin, the situation deteriorated in the conflict zone.

Vital happenings since -

• Pro-Russian separatists have advanced against the Ukrainian military in the town of Debaltseve even after the truce came to effect on 15^th February.

• The next target could be important port city of Mariupol.

• Separate bomb blasts have occurred in Kharkiv, the biggest city in the east, at a pro Ukraine rally. It injured and killed several people. Conflict so far has taken lives of at least 5000.

Financial implication -

• So far the market has not reacted much to these news, but if the situation deteriorates further it could prompt the west, especially the USA to go for more sanctions or direct arming of the rebels.

• Either of the case will be quite bearish for Russian Ruble (RUB) & the overall stock market.

• Russian corporate debt is quite high at $ 550 billion and larger than the state's reserve, lack of access to foreign financial system and rising corporate bond yield will make even the task of restructuring cumbersome and costly.

• Euro zone could suffer further as Russia remains an important trading partner. Russia could impose sanctions in a tit for tat approach which would cripple Europe's export further.

• Crippling Russian economy will also be a bad news for the emerging market. Debt defaults will be pretty bearish for the market as a whole.

USD/RUB is currently trading at 62.87 after making a high around 80 in December 2014.