Fallout from the Sea of Azov. In response to the dust-up in the Kerch Strait this weekend, Ukraine has imposed martial law in the areas that border Russia. It will last for 30 days. The government in Kiev has put troops in eastern Donbass on high alert, and it has stopped Russian citizens from crossing the border with Crimea. Russia has yet to officially announce its position, noting only that it wanted to restore contacts with NATO. European governments, meanwhile, have reacted with their customary rhetoric. German Chancellor Angela Merkel announced today that Europe may need to impose more sanctions on Russia. Austrian Foreign Minister Karin Kneissl said further sanctions would depend partly on how Russia and Ukraine move forward. France, however, may have issued the most honest response: It acknowledged that it’s impossible to discuss major international problems without Russia.

Italy on a path toward compromise. The Italian government insists that it will maintain its 2019 budget goals, though it is still waiting for the results of a full cost analysis that may change its mind. Indeed, Deputy Prime Minister Matteo Salvini already said the government is amenable to changing its current deficit target of 2.4 percent, and his economic adviser admitted changes may be necessary to avoid disturbing the markets any more than they already have been. The more conciliatory tone toward Brussels stands in stark contrast to the tone Salvini struck when he ran for office, and it comes just after the government failed to secure financing from a retail bond sale. BTP Italia raised only 2.2 billion euros from investors – roughly 5 billion to 6 billion less than expected. Late last week, the Bank of Italy’s financial stability reports warned that economic uncertainty has undermined banks and insurers. The reports said that more sell-offs could hurt the solvency of insurers. (The average solvency ratio declined by 23 points to 225 percent in the second quarter.) They also noted that Italian companies’ financing costs have increased and that household wealth has decreased, thanks to falling bond prices. Even so, the head of the eurozone’s bailout fund said Italy still has better fundamentals than Greece did when it was on the brink of collapse and that he’s less worried about Italy losing market access than about a prolonged period of slow growth.

Global trade looks bleak. The latest World Trade Organization data shows a drop in activity for all major drivers of global trade. The organization lowered its trade indicator to 98.6. (Anything under 100 shows below-trend growth in trade.) Market analysts have also said the WTO’s estimates for trade growth – 3.9 percent this year and 3.7 percent next year – are too optimistic. Shipping industry data corroborates these numbers. The Netherlands Central Planning Bureau noted that rates for containers carrying finished goods fell by 26.4 percent, and rates for dry-bulk vessels carrying raw materials fell 38.4 percent, from highs posted earlier this year. Much of this has been attributed to the U.S. trade wars, which show no sign of abating. U.S. President Donald Trump said he is ready to make good on his threat to raise tariffs on $267 billion worth of Chinese goods. And yesterday, he warned the United Kingdom that the current Brexit deal too strongly favors the European Union and may affect the U.K.’s ability to trade with the U.S. in the future.

Japan quietly builds its military. Japan is scheduled to adopt new national defense guidelines at a Cabinet meeting in December, during which the government is expected to order 100 more U.S. F-35 aircraft, on top of the 42 it already ordered. These are supposed to help counter the latest J-20 stealth jets that China unveiled earlier this year. There are also rumors that Tokyo plans to acquire a multipurpose “mothership” that would serve a similar function to an aircraft carrier. Despite constitutional restrictions on building an offensive military, the Japanese government has found ways to increase the capabilities of its self-defense force while still accommodating the law. Between China’s military development and Washington’s delegating security responsibilities to its neighbors, Japan has a need to become more self-sufficient in matters of defense.

Honorable Mentions

  • Turkish President Recep Tayyip Erdogan said there are no longer any Islamic State militants in Syria. He also said Turkey can no longer remain unresponsive to the threats posed by the People’s Protection Units, or YPG, a militia composed largely of Syrian Kurds.
  • The NATO-led peacekeeping force in Kosovo will soon conduct military exercises in the northern part of the country.
  • Alexei Kudrin, an economic adviser to Russian President Vladimir Putin, said Russia is in a “serious stagnant pit,” with growth averaging just 1 percent over the last decade.
  • Turkey’s energy minister said preparations are underway to start drilling for hydrocarbons in the shallow waters off the coast of Mersin in the Mediterranean Sea.
  • A bailout package for Pakistan from the International Monetary Fund has stalled because Islamabad has failed to redress issues of money laundering and terrorism financing.
  • Bosnian opposition parties have formed a bloc to challenge the current government’s policies and to push for EU and NATO membership.