War/Conflict
Russia’s recalcitrance will probably trigger a near-term global stock market correction by prompting larger sanctions and derailing US-China talks. But Israel’s actions do not raise our odds of a major oil shock.
Investors will be disappointed if they buy into the China rally and then Russia escalates the war in Ukraine.
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.
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.
