A deadly gun attack in eastern Ukraine at the weekend threatens to derail a peace deal to prevent a broader conflict in the region and should keep geo-political risk high on the agenda for markets, analysts say.
At least three people were killed in a gunfight on Sunday near a Ukrainian city controlled by pro-Russian separatists, putting at risk a deal agreed in Geneva last week to end a crisis in Ukraine.
In an interview with NBC's 'Meet the Press' at the weekend, Ukraine's interim Prime Minister Arseniy Yatsenyuk made it clear what needed to be done to stabilize the situation.
"If Russia pulled back its security forces and former KGB agents, this would definitely calm down the situation," he said.
According to a report from Reuters, the pro-Russian separatists said armed men from Ukraine's Right Sector nationalist group had attacked them. The Right Sector denied involvement, saying Russian Special Forces were behind the clash.
In an agreement signed in Geneva last week, the European Union (EU), Russia, Ukraine and the U.S. agreed that illegal armed groups would go home in a process to be overseen by Europe's OSCE security watchdog.
"This deal remains on the razor edge," analysts at Mizuho Corporate Bank said in a note on Monday. "Shootings in eastern Ukraine over the weekend show that the crisis is far from resolved."
They added: "Potential risk aversion remains in the background. Should this be the case, safe haven assets will be favored."