Donald Trump continues to be the dominant force for financial markets. First there was the Trump trade, then the tariff trade, the delayed tariff trade, and now the peace in Ukraine trade. Trump is central to all of this, which means that traders and investors need to watch his every move.
Talks are first step in path to end to the conflict
The first round of talks between the US and Russia have ended. So far, the talks are between foreign ministers and there is no date set for President Trump to meet Putin face to face. It is clear that Europe and Ukraine remain out in the cold and are likely to be the price takers for any deal, if and when something is agreed. The lack of a resolution is no surprise, this is the first set of talks, and it is a complex situation that could require weeks and months to get a concrete plan in place for peace between Ukraine and Russia. The good news is that in a statement released after the meetings between the US and Russian teams, the two sides have agreed to further talks to work on a ‘path to ending the conflict in Ukraine as soon as possible.’ In a possible overture to Ukraine, the statement also added that it wanted to find a solution that was ‘sustainable and acceptable to all sides.’
Markets stick with Trump’s plan for now
Trump has ripped up the playbook when it comes to dealing with Russia, and the markets are keeping the faith with the US President for now. Stocks are higher across the board in Europe, and defense names like BAE Systems and Rolls Royce continue to be among the top performers in the FTSE 100, as the market continues to expect a resolution to this conflict.
The potential for peace in Ukraine is also playing out in the commodity and bond markets. Since President Trump’s inauguration, German sovereign bonds have underperformed US Treasuries and UK Gilts, as the prospect of peace boosts hopes for a prolonged recovery in the European economy, and in Germany’s embattled manufacturing sector. If peace talks end, then we could see haven demand put downwards pressure on German yields. For now, the prospect of a resolution remains intact, and this could see German yields rise in advance of an uptick in European economic growth.
Lack of concrete progress on talks highlighted in commodity market
The reaction in the commodity market is worth noting. The gold price is surging on Tuesday and gold is higher by $20 and is assessing the air above $2,920. This could be a sign of nervousness about the future and any potential Ukraine/ Russia peace deal falling apart. Energy prices including the oil price and the Nat gas price, are mildly lower, suggesting that investors are not willing to put big bets on lower energy prices at this early stage of talks. The generic European natural gas price has fallen sharply in the last week, but it spiked higher by 3% on Wednesday on the back of an end to talks, without firm details about when the next round of US/ Russia talks would start. This is a reminder that commodity prices could be volatile going forward, as they react to news flow about a potential peace deal.
Elsewhere, US index futures are pointing to a stronger open and the dollar is still king of the FX space for now.
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