Calm besets markets but for how long?

Equity, commodity and currency markets have all entered a moment of calm.

Which is quite striking given the extreme volatility brought on by the Ukraine War. Even the Russian Ruble has returned to pre-war levels.

Talk of Russian economic doom may prove premature. Retail Sales hit an eight month high at 5.9% and un-employment fell to 4.1%. The Rouble is strengthening on commodity prices, trade surplus, capital controls and a shift away from the Euro and US dollar which will most likely be permanent.

Peace talks have not progressed as far as anyone would like, but there remains a picture of steady progress. As a result, markets took a breather from recent sharp moves.

It may also be the case, that given the sharp rise in US equity markets, one of the main driving forces, that of share buy-backs may be suddenly on hold. The perceived bargain prices no longer being evident in the market. Such a development could make the market vulnerable over coming days.

Both US Stocks and the Rouble have surprised with their relentless strength over the past two weeks. It is a very strange world we live in indeed.

Where to from here?

Despite the investment gaming approach of being smarter than everyone else and looking beyond the conflict, not only are the economic implications set to continue for the rest of the year, but the real challenge of the US and global economy, that of inflation and aggressive rate increases have been made ever more acute by war.

It is a little repetitive to say, but US consumers already displaying crisis levels of little confidence have yet to navigate the full onslaught of hyper-inflation and a Federal Reserve that will be in a state of panic to contain that inflation.

The outlook for the US consumer is severe retrenchment in activity.

The outlook for the US economy is un-mistakably Recession.

Not in 2024, but in the second half of this year.

Stock pricing looks rich indeed at current levels. The dislocation of food and energy has not even begun to take hold.

The US dollar is likely to enjoy immense capital flows from Europe over the rest of this year, but 2023 could become problematic should de-dollarisation gather pace across the Middle East and Asia.

There has never been a more deafening quiet before the storm moment.

Investors should consider the gift-horse just given them and continue to protect their portfolios where possible. Stock valuations can only live in an artificial world for so long.