Russia

Trump, the Fed, the Russo-China bloc, Venezuela, and France are all seeing developments that imply some contrarian tactical views: Long USD, overweight US versus Europe, overweight Europe versus China, and short oil. 

The media is missing the big picture: the war is already contained. The falling oil price confirms that. We fully expect cold feet and volatility incidents in the very near term but there is only a 5% chance of Russia triggering a larger war with NATO – and that is what really matters. 

Investors should stick to a defensive stance in the very near term as the Russia-Ukraine conflict and persistent trade tensions cause market volatility.

Russia poses an immediate risk to global financial markets, and then perhaps a buying opportunity. Trump is pivoting to ceasefires and trade deals, but Russia could trigger a new tariff shock first.

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.

Russia has strong incentives to sign a ceasefire with Ukraine – namely its weak economy as the oil price falls. European assets will continue to benefit. 

Negotiations on trade, Iran, and Ukraine will prove critical this month. Markets will remain volatile because positive data surprises enable the White House to press its hawkish tariff hikes, while negative surprises force the White House to backpedal. 

Trump’s foreign policy can be explained by rational US interests, but it requires settling the trade war with allies sooner rather than later. Book gains on EUR-USD for now.