his is a contrarian view, and we will host a call for clients to go deeper.
We have communicated to clients that the TenViz Cross-Asset analytics sees,
the chances of the Ukraine-Russian escalation being very low and declining.
These low probabilities have been declining (with some noise) since Jan 27, 2022.
Specifically, despite the disturbing news, almost all classes globally signal relative calm:
- Russian Ruble (RUB) made a bottom on Jan 27th, 2022 and has been stabilizing since then, and is, surprisingly essentially flat YTD
- Russian Equities (MCX) were stabilizing since Jan 24, and are even slightly outperforming S&P500 on the YTD time frame
- 10Y Russian bonds are underperforming all emerging markets sovereigns, but their 2M move of 147 bps is not that alarming when contextualized vs. other regional or global risk-off proxies:
- 10Y Italy widened by 103bps
- 10Y Turkey widened by 108 bps
- TenViz proprietary Macro Regimes monitor went into the RiskOn since Feb 9th, 2022.
Commodities with the dominant share Russia-production do not display much stress either (virtually none!):
- Natural Gas TTF (Northern European Hub) peaked on Dec 21 and is down 43% for the last 2 months. That does not signal any price-in stress of possible Russian natgas supplies interruption.
- Palladium – no signs of stress there either!
- Russia produces about 45% of the global palladium, which is mostly used as a catalytic converter
- Palladium was steadily appreciating since Sep 2021, i.e. it has bottomed out far before any geopolitical issues emerged in late November.
- Crude Oil – we see almost no signs of Russian-driven fears there:
- Our indicators for Crude Oil all signal the receding Covid, global reopening, inflation, and supply shortages of almost all commodities.
- we see flows into Crude Oil being entirely driven by the selling of Treasuries (i.e. – the reopening and the inflation trade!) Very much Banks and Life Insurers.