Column: Ukraine endgame could electrify world markets

(Reuters) other negative disturbances.

Murmurs about some endgame in Russia’s 9-month invasion of Ukraine – suggestions of anything from ‘talks about negotiations’ to some deadlocked conclusion – have been circulating in the media for the past week. All of them were viewed by global businessmen as politicians or military planners.

As shown by Russia’s reluctance on the battlefield, speculation and direct talks between Washington and Moscow, Kyiv’s strong commitment to pressure for negotiations and some threats to the elections of the US Congress have ability to undermine the new military ally in Ukraine.

And all that happened before next week’s G20 meeting in Indonesia – where Washington and Beijing at least try to ease the tension between the two major economic powers.

What is clear is the carnage, destruction and suffering in Ukraine since the attack on February 24 has gone out of control – and the mass killings of the Russian military and the isolation of the economy are high costs for the lack of problems and now reduce the regional benefits.

But the global economic recovery after February was greater than in any conflict since the end of the Cold War 32 years ago – and exceeded the limits of military and defense spending in Europe and the United States.

Western protests against Moscow fueled a power outage and skyrocketed food prices and spread the rising costs of the pandemic around the world. That forced huge government spending to reduce housing and business debt and higher interest rate rises from the central bank.

The cost of living and the risk of recession have combined with the global financial crisis and increased geopolitical risks everywhere. The observation is that mixed investments in stocks and bonds had their worst year in a century.

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Even a small light in the darkness can be like a beacon of hope now.

Although they arrived a month ago, world stock indices are still about 16% below the level recorded in the first week in February – when US intelligence warned that a full Russian attack was on the cards. Global government bond prices are down about 20% and the dollar is 14% stronger since then.

In fact, few people think that any end of the conflict will see a return to the first at the political or economic level – not because the numbers are large and the situation wealth has taken on a life of their own. And Ukraine’s debt, Russia’s isolation, power struggle and military conflict could keep it in decline for years even if the ‘hot war’ ends.

But some detente may still have an exaggerated effect on the global investment sector, if only by increasing visibility in the coming year, reducing some of the worst tail risks and allowing the most bearish portfolio position in a decade to be positive. Any change in the central bank’s rate target increases that.

World Markets Since the Ukrainian invasion
Predictions

Exit’ for central banks

Pointing to Thursday’s strong stock price following news of a surprising drop in US prices last month, M&G’s CIO of public finance Jim Leaviss said it showed how the Investors are ready to get ‘the right way’ from here.

“The market is desperate for any signal that the central bank may come in,” he said, adding that the CPI publication alone was removed by at least a quarter from the Fed’s figures. next year.

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Any discussion of the end of the conflict in Ukraine will immediately raise hopes for some major energy and food aid issues next year and ensure that the market reacts in the same way.

“It would remove most of the rate hikes from the central bank’s thinking,” Leaviss said. “Basically, it will give the central bank an ‘out’.”

Oil, natural gas, wheat and some metal prices may be the first to see inflation increase.

For the bond market, factors in the increase in benchmark prices and price forecasts are increased by increasing government and corporate budgets – reducing the risk of public borrowing or -rising the default output is high.

The stock market will benefit from any renewed hope of a ‘soft recession’ next year – with easy lending rates boosting income, consumer demand and some equity prices.

Given that Europe is close to the conflict and increases the air pressure, regional stocks should be higher. The course of trade against the euro and other currencies around the world will be easier, where any ‘security support’ in the dollar may see the greenback give up at least some of the 2022 gains.

The geopolitical risks added to the damaged Chinese investment – due in part to higher risks after the Ukraine crisis – may also be reduced slightly.

But there is a note of caution.

Some investors fear the stimulus and the economic impact only increase the risk of leaving inflation in the system for a long time – especially if the central bank chooses to end monetary easing as a result .

John O’Toole, Amundi’s Head of Multi-Asset Investment Solutions, thinks that there will be an immediate assessment of the reconstruction of Ukraine – in the country of the conference to support projects and products to raise the market for companies and strong things in Europe.

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But he doubts the overall picture will be one of extreme cuts – and thinks net economic stimulus may be more dominant.

“There is no recession next year, inflation is persistent and interest rates are high.”

US geopolitical risks
US rates, Fed rates and markets

The views expressed here are those of the author, a reporter for Reuters.

by Mike Dolan, Twitter: @reutersMikeD Editing by Lincoln Feast

Our principles: Thomson Reuters Trust Principles.

The views expressed are those of the author. They do not reflect the views of Reuters News, which, under the terms of trust, upholds integrity, independence, and freedom from bias.

Mike Dolan

Thomson Reuters

Mike Dolan is Reuters Editor-at-Large for Finance & Markets and has worked as an editor, reporter and columnist at Reuters for the past 26 years – specializing in global economics, policy making and financial markets. across the G7 and emerging economies. Mike is currently based in London, but has also worked in Washington DC and Sarajevo and has covered news from many countries around the world. A graduate in economics and politics from Trinity College Dublin, Mike previously worked at Bloomberg and Euromoney and received Reuters awards for his work during the financial crisis in 2007/2008 and in the stock market in 2010. He is a regular correspondent for Reuters and New International. York Times between 2010 and 2015 and currently writes twice weekly columns for Reuters on major markets and investments.

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