There were peace talks between Russia and Ukraine on Tuesday, that made the “most significant progress” that we have seen since Russia invaded Ukraine at the end of February – Russia will drastically scale down military operations around Kyiv, and Ukraine said they were willing to adopt a neutral status. Whilst we are unsure if Russia will follow through with these exact pledges, the talks are the green shoots of easing for the invasion of Ukraine.
Following this, many key markets embraced the hopes of ceasefire and continued their upward trajectory, with the FTSE 100 recouping the losses it made due to the war in Ukraine. The price of oil, wheat and corn dropped on the news, after the highs of the last month. Whilst they have had a slight bounce back since, these commodities are ultimately set to ease in the event of any de-escalation.
Whilst the price of the latter two commodities may seem insignificant to markets, they are ultimately contributors to food inflation, and a reduction in their cost will ease some of the inflationary pressures we are seeing globally.
Whilst an immediate ceasefire in Ukraine would be the preferred outcome of these talks, and provide the path of least resistance (and a boost) for markets, markets have largely priced in the prolonged impact of a war.
Looking towards the week ahead, on Thursday, OPEC+ meet to discuss their planned output of oil, leaving geopolitical issues at the door. The production of oil is largely driven by supply and demand – it is looking unlikely that OPEC+ will opt to boost production, given they believe the current supply in the market is sufficient to meet demand.
Over the rest of the week, we have Eurozone inflation, Eurozone consumer confidence and US and UK Q4 GDP.
Hannah Owen, Portfolio Specialist.