Major US stock market indices such as DOW Jones, NASDAQ and S&P 500 closed Wednesday with significant gains. This was not a reasonable stock market reaction. Yesterday the Fed summed up its second meeting of the year. Notably, for a long time the market was almost certain that a 0.5% rate hike would happen, but in reality, the Fed only raised the rate by 0.25%. The markets were prepared for this outcome, so the US dollar fell rather than rose and the stock market ended the day up rather than down. Although there was talk of a tightening of monetary policy anyway, so the reaction is still not obvious.
Meanwhile, the geopolitical conflict in Ukraine continues. Unfortunately, hostilities have not ceased, so it is still very early to talk about de-escalation of the conflict. According to the latest information, the Western countries intend to start supplying Ukraine with air defence equipment. The introduction of US and EU peacekeeping troops into Ukraine will also be considered. From our point of view, such a move could contribute to a quicker end to hostilities, but it would also significantly worsen the already completely damaged relations between Russia and the Western countries. It is even more difficult to predict what such a move by the West might entail than the market reaction to the 0.25% rate hike. The Kremlin has repeatedly stated that any deliveries of air defence or combat aircraft to Ukraine would be regarded by it as direct involvement in a military conflict. Roughly speaking, if Poland, as is being discussed, hands over its planes to Ukraine, Moscow will consider that Warsaw has entered the conflict on Kiev's side. In this case, hostilities could also start on Polish territory. Notably, many experts believe that World War III has already begun. The only question is how extensive it will be and when it will end.
Unfortunately, such predictions are partly true. Hostilities are now taking place in the heart of Europe, and even countries that originally supported the Kremlin are imposing sanctions on Russia. Serbia, for example, announced yesterday that all flights from/to Russia have been cancelled, thus closing the last "window to Europe". Many countries continue to impose sanctions against Russia and members of its government, as well as blocking the assets of Russian oligarchs abroad. In general, there is now increased pressure on Russia and, naturally, the Kremlin will try to respond to these sanctions with sanctions of its own. This means that the situation is escalating. Negotiations between Kiev and Moscow are ongoing and, as both sides assure us, progress is being made. However, it could be quite a long time before a ceasefire agreement is reached. Then Kiev will demand reparations from Moscow and there is reason to believe that Moscow will not take such a step. In any case, this conflict will have serious consequences and will drag on for many years.
