LIVE MARKETS-Markets need to take notice as Ukraine gets dicey again

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MARKETS NEED TO TAKE NOTICE AS UKRAINE GETS DICEY AGAIN

With Middle Eastern conflicts in negotiations and tensions around Taiwan only simmering, investors have been focusing on risks from Washington: trade wars, debt dynamics and who might fill the next Fed chair.

But Christopher Smart, founder and managing partner of the Arbroath Group, thinks there’s trouble brewing in Ukraine that may soon send shock waves through global markets as Russia’s attacks escalate and Western sanctions tighten.

"It may not be quite right to say the Ukrainians are gearing up for escalation after more than three grinding years of fighting. But with Russia’s attacks growing more intense and Western support gathering fresh momentum, the fighting seems likely to expand before it winds down." writes Smart in a note.

As Smart sees it, last-minute diplomacy is always a possibility, but he believes it would require Putin to make a quick pivot.

More likely, Smart says the Donbass battle lines in eastern Ukraine face escalation and expansion. With this, he thinks Russia may suffer a fresh economic blow if even only some of its oil and gas exports are interrupted. Meanwhile, the global economy faces the risk of another oil price spike, a jump in European bond yields, and damage to trade flows.

"Odds of a Russian attack on Poland or the Baltic states remain low, as does any talk of nuclear weapons entering the equation, but a war that once looked consigned to the list of frozen conflicts looks like it’s heating up again fast," writes Smart.

Of note, President Donald Trump said Monday the United States will send top-of-the-line weapons to NATO to support Ukraine in its war against Russia.

(Terence Gabriel)

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