FOMC starts its two day monthly monetary policy meeting

• Putin speech sends US futures into the green ahead of the opening bell;

• Negotiations between Putin and the West likely to drag on;

• US housing data positive as building permits rise above a million for first time since November;

• FOMC starts its two day monthly monetary policy meeting.

US futures are pointing higher again on Tuesday, following a speech in front of Parliament by Vladimir Putin in which he claimed that Crimea is now part of the Russian Federation, while assuring people that he will never seek a confrontation in the West. Traders responded very positively to this, as seen by US futures which had previously been trading in the red but are now expected to open higher. The S&P is seen opening up 3 points, the Dow up 50 points and the Nasdaq up 8 points.

Traders had previously been concerned that any sanctions made against Russia could provoke a retaliation from the Kremlin, but this does not look likely. Not only were the sanctions by the US and the EU on 11 and 21 Russian and Crimean officials, respectively, viewed as weak by the markets, Putin did not appear concerned about them in the slightest. In fact, he didn’t even mention them in his address before Parliament.

Putin’s comments on the whole gave the impression that Russia wants a peaceful solution on the matter but that is unlikely to be enough for the West, which still views the annexation of Crimea as illegal and does not recognise Sunday’s referendum. This is unlikely to change given that the vote did not include an option to remain part of the Ukraine and was carried out under the threat of violence.

I imagine that the best outcome for Russia here would be another fair vote being carried out in Crimea that included the option to stay and no threat of violence. Should the people then vote to join Russia, the West may accept it. Even this seems a long shot though at this stage and is unlikely to happen any time soon.

One thing Putin’s comments do suggest is that the odds of this escalating further have been slashed. The West may make another attempt at sanctions but based on its first efforts, it’s clearly too afraid to be overly aggressive and provoke a retaliation. Eventually we will have to find a diplomatic solution to this, the only downside being this is unlikely to be quick. What we’re likely to see now is this disappear from the headlines and the markets move onto the next issue, which based on recent reports will probably be China.

With the markets now clearly quite relieved on this issue, attention can turn back to the economy. Already today we’ve had some mixed housing figures from the US, with building permits rising to 1.018 million in February, well ahead of expectations, and housing starts falling slightly short at 0.907 million.

US inflation also fell more than expected but at 1.1%, this isn’t really much of a concern to traders. Not until it approaches the Fed’s 2% target will traders start to be concerned about this as it is not going to pressure them to hike interest rates. Even then, the Fed’s preferred measure of inflation is the core personal consumption expenditure index, so the CPI reading tends to have less of an impact.

The rest of the day is likely to be fairly quiet, with only low-tier economic data being released. Tomorrow though we do have the FOMC monetary policy decision, followed shortly after by Janet Yellen’s first press conference as Fed Chair. The FOMC is expected to reduce its asset purchases by another $10 billion tomorrow, but the potential market moving action could come during the press conference, when Yellen could provide any insight into whether the FOMC has considered slowing the rate of tapering.