Over two centuries ago, famed British banker Nathan Mayer Rothschild coined the trading phrase, “buy on the sound of cannons; sell on the sound of trumpets.”
He was insinuating that markets tend to panic at the outbreak of wars (“the sound of cannons”), presenting good long-term values. On the other hand, markets typically become sanguine once a conflict comes to an end (“the sound of trumpets”), driving them to elevated levels where traders may want to consider selling.
According to Ukrainian President Petro Poroshenko, the first round of cannon fire has officially been launched. Poroshenko announced that unmarked Russian military troops have taken the coastal town of Novoazovsk earlier today and called for an immediate meeting of the UN Security Council and European Council to respond. This follows in the wake of an announcement that Ukraine had captured 10 Russian paratroopers on Tuesday.
Perhaps eliminating any shadow of a doubt that Russia is officially encroaching into Ukraine, the head of the pro-Russian rebel group recently proclaimed, "I'll say openly that fighting among us are active military who prefer not to spend a holiday on the beach….They are among us brothers who are fighting for their freedom."
For what it’s worth, Russian ambassadors continue to deny that Russia is involved in the fighting in an official capacity, but traders are ignoring Rothschild’s advice and selling related assets aggressively. The Russian MICEX stock index has dropped nearly 3.00% from yesterday’s close and local currencies, including the Russian ruble (CME:R6U14), Turkish lira (CME:E4U14), and Polish zloty (CME:WPU14) are all down against the U.S. dollar in risk-off trade today. No offense to the late Sir Rothschild, but the price action in the Russian rouble in particular looks more likely to get worse before it gets better.