The number of threats facing markets; from inflation, central bank hikes, war, geopolitics, recession risks, corporate earnings and bond liquidity are legion. The big risk is they combine into a chaotic tipping point, at which moment we will just have to pick up the pieces…. Again.
The outlook for markets remains dire.. no worries! But what chance governments, central banks, the economy and growth enablers suddenly turn up the good news and put it all right again…? Are we over-estimating stagflation and recession?
Who really knows what is happening in Ukraine, or what the players are thinking? The long-term economic consequences could be huge, marking the moment the post Cold-War global consensus and order breaks down. The potential consequences include social and political instability, war, famine, and who knows what else.
The World is Utterly Changed. The new imperatives are: Energy and Food Security, Defence and Cybersecurity. Climate Change will become a point of Western Friction. New Geopolitical Lines are being drawn.
Yet another difficult week in prospect for markets as $130 oil threatens a global shock, geopolitics remains on the edge, and London tries to rid itself of an infestation of oligarchs without exposing the politicians who let them capture the state.
The risks in Ukraine are escalating as Russia shows the nuclear card – but markets are behaving as if its Russia has been backfooted as the West finally wakes-up to the threat. Russia might have miscalculated some aspects of its strategy, but it would be wrong to think much has changed – yet!
The World has changed and changed utterly – although we may not realise it yet. We are likely on course for massive disruption, inflation, rising geopolitical crisis and uncertainty, and a high probability of stagflation. But – don’t tell anyone. Anyone for a choc-ice?
Ukraine has kicked off and its risk-off for markets as the reality there being no effective Western response kicks in. The implications for markets are huge – especially from the global geo-political perspective as nations decide how to play this. Turkey is caught in a classic currency-debt crisis which is now an opportunity for Erdogan and threat for the West and China.
The world is a complex place, and the massive macro threat posed by Ukraine is a clear danger to markets. Less clear, but just as significant, is economic failure at the micro level as firms start to fail as banks pull back, and the sheer injustice of what happened to UK Postmasters. The elites will protect their own - not a single manager will go to jail despite their appalling treatment of post office staff.
Markets are great at reacting to a single stimulus but are like a frog in a pan of warming water when it comes to consequential events. Forget “Black Swans” or “no-see-ums”, but figure out how the increasingly complex picture of unfolding events and consequences are driving markets!