Markets are still on a learning curve with respect to the Ukraine conflict and sanctions

The Ukrainian War continues to cause havoc in our markets with investor conviction being challenged by extreme volatility in commodity prices. The surge in the gold price last week was short-lived and heavy profit taking in the oil market flowed through to equity markets. Even though commodity prices have generally been stronger, and this should lead to higher share prices, the correlation has been inconsistent.

Where are we going with this war? So far it doesn't seem to be working for any party. On the one hand some people are saying Putin is delusional, but perhaps he could be better described as a risk-preferring leader - a player of ever-higher-stakes. In recent years, drawing upon his experience in Syria, he has learnt that boldness, surprise, and playing on his opponents' fears of a wider war are the keys to getting what he wants. He can stomach risks that other leaders can't. That makes him unpredictable as he toys with the West like a cat toys with a mouse. Our markets do not like the feeling of sand shifting around their feet and again we note that this erodes any conviction that might give us confidence.

The news that US inflation hit 7.9% last week, as measured by the CPI, reminds us that this inflationary surge is not over yet. The central banks told us that the inflation was caused by temporary supply shortages as they tried to placate inflationary expectations, but the Ukrainian War has shifted the goalposts beyond their expectations. The obvious acceleration of inflation is coming from oil and gas prices but factor in the emerging shortages of other commodities caused by the War and you cn see that central banks are quickly losing control of the agenda. 

 WeeklyComm12March2022.pdf