Equity, commodity, and currency markets have all entered a moment of calm.
Which is quite striking given the extreme volatility brought on by the Ukraine War. Even the Russian Ruble has returned to pre-war levels.
Talk of Russian economic doom may prove premature. Retail Sales hit an eight-month high at 5.9% and unemployment fell to 4.1%. The Rouble is strengthening on commodity prices, trade surplus, capital controls, and a shift away from the Euro and US dollar which will most likely be permanent.
Peace talks slow progress
Peace talks have not progressed as far as anyone would like, but there remains a picture of steady progress. As a result, markets took a breather from recent sharp moves.
It may also be the case, that given the sharp rise in US equity markets, one of the main driving forces, that of share buybacks may be suddenly on hold.
The perceived bargain prices are no longer evident in the market. Such a development could make the market vulnerable over the coming days.
Both US Stocks and the Rouble have surprised with their relentless strength over the past two weeks. It is a very strange world we live in indeed.
Where to from here?
Despite the investment gaming approach of being smarter than everyone else and looking beyond the conflict, not only are the economic implications are set to continue for the rest of the year. The real challenge of the US and global economy, of inflation and aggressive rate increases, has been made even more acute by war.
It is a little repetitive to say, but US consumers already displaying crisis levels of little confidence have yet to navigate the full onslaught of hyperinflation and a Federal Reserve that will be in a state of panic to contain that inflation.
The outlook for the US consumer is severe retrenchment inactivity.
The outlook for the US economy is unmistakably recession. Not in 2024, but in the second half of this year.
Stock pricing looks rich indeed at current levels. The dislocation of food and energy has not even begun to take hold.
The US dollar is likely to enjoy immense capital flows from Europe over the rest of this year, but 2023 could become problematic should de-dollarisation gather pace across the Middle East and Asia.
There has never been a more deafening quiet before the storm moment.
Investors should consider the gift horse just given them and continue to protect their portfolios where possible. Stock valuations can only live in an artificial world for so long.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
