Geopolitics continued to weigh on equity markets as tensions with Russia mounted. Reports indicated that troops are massing on the borders of Ukraine and Poland. In response to increased sanctions from the US and Europe, Russia placed bans on certain imports further increasing economic isolation. Of all the geopolitical issues of the day which are not in short supply, this particular situation is the most worrisome. With Putin backing more and more into a corner, the probability of a short sighted out lash of hostility increases in probability.
Due to the above and softening economic data, European equities in particular have suffered in the market retracement. Italy announced a surprise contraction in Q2 GDP as their progress on reforms has lagged and exports have suffered. Earnings growth in the Eurozone has remained lackluster, in part because of the effect of a resiliently strong euro on earnings. ECB President Mario Draghi continued to indicate that asset purchases are being readied to refresh economic conditions, but Europe is likely to remain parched until later this year. As previously mentioned, we have held off increasing equity risk in the region until the path becomes clearer.