Putin's Gambit

We have been increasingly concerned about the buildup of troops around Ukraine and Russia’s ultimatum to NATO and the West. Putin made it clear that he wants NATO to halt its eastward expansion, with the line in the sand being the Ukraine. Putin is a lot of things, but a bluffer is not one of them. We now know his end game: regime change.

Is the Ukraine war now fully priced into markets? We don’t believe so. There remain substantial uncertainties. The short-term impact will be higher commodity prices, both energy and soft commodities specifically. This will likely translate into higher inflation in the coming months, which may force central bank policy makers to raise rates sooner and higher than expected. This, in turn, could lead to slower growth globally.

2022 began with the hope that the pandemic would be behind us and a return to normalcy was approaching. The main concern was the Fed’s rate increases and balance sheet unwind. Russia has now taken over the narrative. The Russian military has sent troops into three former Soviet states so far this year: Kazakhstan, Belarus, and now Ukraine. Putin has successfully expanded Russia’s sphere of influence, but at the high cost of global stability.