Looking Ahead – The March of Folly 2-25-2022

Looking Ahead – The March of Folly


Prior to this week’s full-scale Russian invasion of Ukraine, plenty of global security experts (and many less erudite commentators) had predicted that the massive buildup of Russian troops and material on the border would serve as a show of might and warning to NATO, but the actual objectives of President Putin’s offensive would be limited to prying away the two regions in the east, Luhansk and Donetsk. Such a conclusion tended to hinge on the expectation that a massive, unprovoked invasion of Ukraine by Russia would be a brazen war crime, particularly given the effectiveness of the Biden administration and others in exposing the Kremlin’s clumsy false flag fumbling, and almost certainly a monumental strategic blunder. Successfully capturing and then durably holding a large and populous independent country like Ukraine without incredible cost of lives and treasure simply does not seem feasible in this day and age.


As reasonable as this prediction may have been at the time, it was incorrect. Though there are still some who think that Putin is playing geopolitical chess while the Western world plays checkers, capturing Kyiv and installing a Vichy government may well prove to be the easy part. But amoral global markets don’t pick right and wrong, just what makes money or doesn’t, and the prospect of an end to the hostilities in Ukraine, no matter the shoddiness of the puppets put in place to run the country as a vassal state of Russia, are enticing opportunistic buyers back into the stock market.


They say March comes in like a lion and out like a lamb, and that may well be the forecast for financial markets over the coming month as well. If Kyiv falls over the coming weeks and Russia “negotiates” for a nominally neutral government amid a cessation of outright hostilities, financial markets are likely to experience a degree of relief (yesterday’s rally was an early flicker of these hopes). Meanwhile, we expect that the Fed will raise interest rates by 25 basis points, not 50, at the March meeting, alleviating some concerns of a maximally aggressive tightening trajectory. These factors taken together have the potential to drive a period of countertrend “risk on” price dynamics next month.   


Despite the prospects of a respite in March, we retain our longstanding base case that market volatility will remain elevated into the late spring/early summer, and that concerns about Federal Reserve and global central bank overtightening into a supply shock and cyclical global slowdown will continue to drive a flattening trend of the Treasury yield curve, a firmer dollar, and reflation-in-reverse dynamics prevailing in global risk assets (with the notable exception of commodities driven by supply shocks).    


Looking ahead to next week, developments in the Russia/Ukraine war will be in the spotlight, alongside what will surely be a heavily scrutinized State of the Union address by President Biden. Chair Powell’s testimony before Congress also has the potential shift market expectations about the Fed’s reaction function to the current inflationary environment, in the face of a geopolitically-driven oil price shock. It will be a big week for crude, as OPEC+ holds their monthly meeting to decide production levels for April and the Iran nuclear deal negotiations reach a critical juncture. On the data front, US February nonfarm payrolls are on the calendar on Friday, while additional US and global Purchasing Managers’ Indexes (PMIs) and EU inflation and retail sales metrics are also due. The Reserve Bank of Australia and Bank of Canada have policy decisions.  



  • Russia/Ukraine War
  • State of the Union Address
  • US Nonfarm Payrolls
  • Global Purchasing Managers’ Indexes (PMIs)
  • OPEC+ Meeting
  • Australia & Canada Central Banks
  • EU Inflation
  • EU Retail Sales