Market Insider

Traders eye Ukraine as Crimea referendum looms

Geopolitical tensions & the US markets

Tensions around Ukraine will dominate markets Friday as diplomatic efforts are expected to generate plenty of headlines ahead of Sunday's referendum in Crimea.

Stocks tumbled Thursday in the worst day of selling in more than month. The Dow was down 230 to 16,109 and the fell 21 to 1,846, below the key 1,850 level.

Headline after headline on Ukraine added to Thursday's unease, including a warning from German Chancellor Angela Merkel of "catastrophe" if Russia does not drop its plans to annex Crimea.

U.S. Secretary of State John Kerry said if Russia goes through with the referendum in Crimea on Sunday, the U.S. and the West will respond with a "serious series of steps." Russia, meanwhile, was carrying out military exercises near the Ukraine border. Traders will be watching for further comments from Kerry and others Friday.

(Read more: $3 billion for Ukraine to go straight to...Russia)

The rallied and risk markets sold off Thursday. The euro was lower Thursday afternoon, after European Central Bank President Mario Draghi said the ECB was considering more stimulus. But earlier euro strength paralleled a steep decline in European equities, and German stocks ended down almost 2 percent.

Trader on the floor of the New York Stock Exchange.
Getty Images

There is PPI data at 8:30 a.m. ET and consumer sentiment at 9:55 a.m. but the markets will stay laser focused on Ukraine, ahead of the weekend.

Also in the background is concern about China, which reported weak retail sales and industrial production data Thursday. There were also reports Thursday that lending to some Chinese businesses would be cut by 20 percent.

"I think it's reasonable to have concerns about China," said Robert Sinche, global currency strategist at Pierpont Securities. "A year ago, people were thinking there was risk it could slow down to 7.5 percent (growth). Now the view is 'I hope they can make 7.5 percent.' I think that's a meaningful switch."

(Read more: Art Cashin: Next few days are 'absolutely critical')

China has been trying to curb excess in its shadow banking system and cool lending. But there is concern the slowing economy could spill over to the rest of the world.

Barry Knapp, head of equity portfolio strategy at Barclays, said he's concerned the slowdown in China could impact the earnings of U.S. industrial companies, and slow down the stock market's gains. As for Europe, he said a slower China could have an even bigger impact.

"I think we're at the start of a credit situation and the great lesson is you don't work out credit situations in a quarter," said Knapp.

(Read more: China hit by economic smog)

Worries about China picked up last week after the first ever default by a corporate borrower raised concerns that others could also default.

"They moved their currency down, and I think they have no intention of letting the appreciation start again," said Sinche, adding the currency has fallen 1.5 percent from mid-January. "I think we're going to go for a year without letting the currency appreciate to really try to assess what's going on and to make sure the economy is making the transition."

There are several earnings Friday, including , The Buckle and Intercept Pharma.

—By CNBC's Patti Domm. Follow her on Twitter @pattidomm.