Saturday Hark Back - 25 Feb 2023

Capturing the themes of the week when there’s time to digest them.

Ukraine - One year on

Lest we forget the conflict in Ukraine has reached its one-year anniversary amid many tributes to the bravery of the Ukrainian citizens and soldiers coupled with much condemnation of Putin’s aggression and hostility. 

It has been the war that has shaken Europe and shattered its confidence that the borders that have stood for over 30 years are in fact not as set in stone as many had thought. Estonia had been very vocal on such matters prior to the conflict, and many other countries are now left feeling vulnerable.

The sheer numbers drive home the extent of the conflict:

• Over 100,000 Russian service personnel dead, with Ukraine suffering 13,000 losses on top of 7,000 civilian deaths;

• 8m refugees displaced from Ukraine, close to 20% of the population;

• at the peak of the invasion, in the early weeks, Russia controlled approximately 27% of Ukrainian territory although, after many counter-offensives, the Ukrainians have reduced that to approximately 18%; and 

• $170bn has been pledged in humanitarian and military aid to assist Ukraine. 

The numbers alone make a mockery of Putin’s early predictions that the Russians would be marching on Kyiv in a matter of days. 

Below I post some fascinating articles on the build-up to the conflict itself and some thoughts on China’s recent “peace proposal”—also a piece from The Economist detailing the extent of the fighting across the country in great detail. 

Timothy Ash - China's PR peace plan revealed

Politco - An oral history of the lead up to the war

Politico Podcast - Russia's war in Ukraine one year on

The Economist - Satellite data reveals the extent of the fighting in Ukraine

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What next for The Fed - more to do

The main highlight of the week was the Fed minutes, and in keeping with the rest of the week, they did little to excite. They did, however, help to confirm the market’s newly held view that there will more than likely be a further three 25bp hikes from the Fed by mid-year and then let’s see. 

The coming weeks’ February data prints will be critical to gauge if that hiking streak will stretch even further into the second half of the year or whether that long-awaited pause will at last arrive. 

January data was ushered in by that bumper payrolls print which set the trend for an impressive run of beats, in particular, retail sales and the new orders component of services ISM. The January data was helped by a milder month of weather and potentially, we shall see some payback in the February data. However, given Friday’s Core PCE number, it feels like inflation is not disappearing anytime soon, and the Fed hiking sequence looks like continuing well into the middle distance. 50bps in March anyone?

I post some links below to some articles and podcasts that delve deeper into the Fed’s inflation troubles. 

Nomura Podcasts - Can US data keeping surprising higher

MacroVoices - Julian Brigden on opportunistic disinflation

Fortune - Jamie Dimon scaremongering on the Fed's fight with inflation

Stay at Home Macro - Can the Fed bring down inflation alone?

 

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