“When the rich wage war, its the poor who die” John Paul Sartre

One writes this conscious of the humanitarian crisis that has developed as a result of Putin’s Russia invading the Ukraine late on Wednesday evening. Capital markets reacted as it focuses on the possible implications for the global economy. Initially we saw European markets hit hard, falling between 3-4% on Thursday. Oil prices rose and investors headed for the safety of US treasuries. American markets followed suit at the open, as the Nasdaq index fell into bear market territory and the MSCI World index along with the S&P 500 both fell into correction territory. As we commented on Friday, slightly against what one would expect the price of gold was little changed. Then came a late rally in the Nasdaq and the S&P 500.

The late rally on Thursday helped European stocks start Friday on a positive note. As the day wore on investors took confidence as the price of Brent crude fell back below 100 dollars. US treasuries remained stable, so much so by the end of the week the US yield curve steepened, if only by a very modest amount. The price of gold fell, now back below 1900 dollars and ounce. Having jumped at one point to levels that indicate panic was creeping in, the Vix fear index actually fell on the week. The risk aversion led to a strong rally in the US dollar, as was the case with other asset classes, the trend reversed on Friday.

This weekend governments have announced more sanctions against Russia, including blocking Russia’s access to the Swift international banking payment system. Although the west have little options but to introduce sanctions, the risk is what harm does it do to the economy of those who impose them? One example of retaliation could be a freeze of energy exports to Europe from Russia. The Sunday Times front page sates that large parts of the City have ground to a halt as investors and banks get to grip with the uncertainties. According to the Telegraph Moscow will not even blink at being denied access to Swift and have spent the last 8 years developing ways to circumvent the system as they prepared for such an action.

Macro data will take something of a back seat for the coming days as the focus remains on the conflict between Russia and the Ukraine. One gets the sense all is not going Putin’s way and that invading such a large country as Ukraine possess unforeseen serious logistical problems. Ukraine’s resistance is strong and many Russians oppose the invasion. Despite this the events of the weekend will see developed markets open to the downside again.

The month starts with the Purchasing Manager surveys as the flash surveys indicated more resilience to economies than expected, until there is more certainty around the conflict this will not be the focus.