Long tail risks remain manageable in the nearest terms despite intensification of the toughest policy challenges, especially the war in eastern Europe. Ukraine’s reported land and sea offensives along with Russian President Putin’s words reinforce the ‘long slog’ thesis. Speculations of an early May parade celebration are forcefully discounted by us. Emotion, weather, and heavy rearmaments by both sides undermine notions of hostilities easing soon.
War
All signs point to ramping escalation by both sides. Whatever explains the damage to the Russian warship Moskva, Ukraine’s ability to wage sophisticated military operations is owed to Kyiv’s 2014-present plan to reorganize and improve national professional capabilities and to NATO weaponry. Both factors irritate Putin and reinforce his sense of aggrievement, real or fabricated, which underpins his domestic and global propaganda strategies.
Macroeconomics
Central bankers are increasingly folding the war into their inflation and policy normalization comments. US Treasury Secretary Janet Yellen has framed next week’s meetings of the IMF/G20 as a dividing line between those funding Putin’s aggressions or those opposing them. ECB President Christine Lagarde continued the refrain albeit less combatively this morning. Fed speakers this week could be read as pivoting to a less hawkish posture. Our sense is investors can live with the confusion if this is a pivot informed by data. If the change comes as Democrats’ midterm election challenges increase and the language adaptation is political, the Fed might be compounding credibility concerns.
All four pending Federal Reserve Board nominees likely will be confirmed before the upcoming May 3/4 FOMC sessions (moderate-to-high conviction call). The importance of the May 4 statements is elevated by (1) the likelihood that QT and rates each will provide consequential policy clues, (2) the combination of new members, and (3) investor expectations for clarity about the way forward on complex Fed policy.
Cybersecurity
An announcement yesterday from US government cyber experts re-focuses attention on the space. Officials pointed to concerns of hacker attacks on energy infrastructure industrial controls. The attack on Colonial last year looks like a test of hacker capability, industry response and resilience. John Roque’s updated scores of our cyber risk proxy, the BUG US ETF and its members, shows strong interest and more than a few strong ratings.
The evermore interconnected world reminds us daily that the nimble of thought and action endure best. Despite tangible risks and the noise surrounding them, celebrations global and local deserve recognition. These humanizing rituals help bind many of us, without minimizing horrors inflicting much of the world.
Happy 91st birthday mom!
