Markets were closed today in observance of Juneteenth, the newest federal holiday, as bulls licked their wounds from last week. With stocks down big in June, investors are hoping for a summer recovery come July.
But will they get one?
The market certainly looks oversold and due for a pop higher. But if the war in Ukraine continues to spill over, as it did this morning, sentiment may dip even lower.
The latest development in the Russia/NATO conflict didn’t take place in Ukraine, but in Lithuania, a country that finds itself sandwiched between Russia and Kaliningrad Oblast. Kaliningrad is a Russian sovereign territory that sits upon the southern edge of the Baltic Sea.
It’s also disconnected from Russia, which makes the territory an easy target for the West.
Last Friday, Lithuania (a NATO member) banned all rail transit goods going from Russia to Kaliningrad.
A Reuters report noted that the ban included “coal, metals, construction materials and advanced technology,” covering “around 50% of the items that Kaliningrad imports.”
Kaliningrad’s governor, Anton Alikhanov, said the territory is home to roughly one million people. Most are concentrated within the area of Kaliningrad city.
On the ban itself, Alikhanov argued it was “illegal and may entail far-reaching implications for Lithuania and the European Union.”
He continued, citing past agreements that were made when Lithuania became an EU member back in 2004.
“I would like to quote a few paragraphs from the Joint Statement on EU Enlargement, with references to international agreements, the documents which both the European community and the Russian Federation acceded to,” Alikhanov said, before reading directly from the joint statement:
“[Lithuania] will apply in practice the principle of freedom of transit of goods, including energy, between the Kaliningrad Region and the rest of Russian territory. In particular, we confirm that there shall be freedom of such transit, and that the goods in such transit shall not be subject to unnecessary delays or restrictions and shall be exempt from customs duties and transit duties or other charges related to transit.”
In other words, Kaliningrad believes it has just cause to “run” the blockade, as it is illegal per the EU Enlargement Joint Statement. The EU, on the other hand, sees it differently.
Reuters reported the EU is arguing that “sanctioned goods and cargo should still be prohibited even if they travel from one part of Russia to another but through EU territory.”
Tensions flared over the weekend as Alikhanov repeatedly addressed the media over the situation. This morning, however, the Russian Foreign Ministry finally got involved when it released a statement on the blockade.
“We pointed out that we consider provocative measures of the Lithuanian side that violate Lithuania’s international legal obligations, first of all the Joint Statement of the Russian Federation and the European Union on transit between the Kaliningrad region and the rest of the Russian Federation of 2002, to be openly hostile.”
The Russian Foreign Ministry then concluded its statement, adding an ominous warning:
“We have stated in this connection that if cargo transit between the Kaliningrad region and the rest of the territory of the Russian Federation through Lithuania is not restored in full in the near future, Russia reserves the right to act to protect its national interests.”
The partial blockade is the most significant provocation of war between Russia and NATO since the West mulled over imposing airspace restrictions early on into the invasion. And while it’s unlikely that any military action arises from this, there’s also a legitimate risk that it might.
That won’t be good for stocks. For “fear assets,” however, there may be a buying opportunity. Precious metals are looking relatively oversold in the short term. Silver, especially, has been beaten down in recent weeks, making the iShares Silver Trust (NYSE: SLV) particularly attractive as tempers rise in eastern Europe.
