European equities were on track for their first weekly gain since the start of the war, but outflows from regional shares hit a new record.
Almost $14 billion fled EU equity funds over the latest reporting period, the biggest outflow ever (figure below).
The latest exodus came on the heels of a huge outflow the previous week. The four-week moving average is now the lowest in recent memory.
Equities were a mess over the past five sessions, as hair-trigger algos scanned war headlines for “ideas” and systematic flows exacerbated directional moves, leading to manic swings that appeared inexplicable to the untrained eye.
The DAX rose an eye-popping 8% on Wednesday, only to crumble Thursday and surge anew through midday Friday (figure below).
Markets will remain hostage to Ukraine headlines for the foreseeable future. Developments on the ground continue to be foreboding and ceasefire talks were fraught.
The implications for Europe of an escalation that finds Moscow deciding to curtail gas flows could be dramatic. “The scenario in which Russia stops all pipeline exports could see Euro area GDP growth fall by 2.2pp in 2022 relative to our baseline forecast, with sizable impacts in Germany (-3.4pp) and Italy (-2.6pp),” Goldman said this week.
The ECB cemented a hawkish pivot on Thursday in the face of surging inflation but pledged to support the economy in the event the crisis were to impair liquidity or market functioning.
“Fast inflation for at least the rest of this year seems inevitable,” ECB Governing Council member Madis Muller said Friday. “It’s probable that euro-zone average will remain higher than 5% this year, before slowing next year,” he added.
In a Thursday note, RBC’s Helima Croft refused to rule out anything. “A Russian attack on one of the Baltic States represents one of the gravest near-term threats in our view, as this would lead to the internationalization of the conflict because of the NATO Article V collective defense obligations,” she wrote, noting that although “some market participants are quick to write off such an escalation because it would not seem a rational move by the Russian leader, we see his decision to launch this invasion as a clear indication that he is operating with a far different calculus than democratically elected Western leaders.”
Croft didn’t stop there. Referencing Alexander Novak’s threats, she reiterated that RBC “see[s] a clear risk that Russia will deploy more serious counter economic measures to inflict greater inflationary pain on Western consumers and are closely watching the situation with the Nord Stream 1 pipeline.”
If you ask Croft, a popular strategist for those unfamiliar, it’s not clear “how long Moscow will remain concerned about safeguarding its position as a stable reliable supplier with Europe moving to sharply reduce dependence on Russian gas.”
Aside from perhaps an errant long range missile, the likelihood of a military assault beyond Ukraine is increasingly unlikely. Russia’s abject failure from a military perspective has changed Putin’s calculus both from Russian capabilities and Putin’s understanding of how far the west would let him go on bluster alone. The myth of Putin’s military prowess has been burst. The only thing he has left is Putin the madman, Putin the war criminal.
I watched the Frontline interview with Julia Ioffe (Russian born, American journalist and founder of “Puck”) that a commenter on this site posted a link to yesterday. Definitely worth the time to watch. Her insights into Putin are very interesting and make a lot of sense. He is very isolated, delusional snd everyone close to him is scared to do or say anything that goes against what Putin wants to do or wants to hear.
Hopefully, someone in the Russian military puts Putin in his place and the oligarchs go running into hiding throughout the world- similar to the high level Nazis after Hitler committed suicide at the end of WWII.
Unfortunately, if Putin committed suicide he’d insist on taking a couple of million people with him.
Agreed. Our best hope for humanity is a military coup d’etat.
Isolated, delusional and never more dangerous than now.
I tend to agree with you that an assault by the Russians elsewhere is unlikely, it’s been reported that he is committed a 100% of Russian forces that were previously sitting on the border of Ukraine. I have not heard this anywhere, but the West could create a strategic diversion by admitting Finland and Sweden to NATO with immediate effect. I don’t fully understand the nuts and bolts of how this could happen (as I believe it’s a lengthy process), but it would send a further clear message to Putin.