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What's going on?

Another act of Russian aggression sent ripples through markets on Tuesday, but you know what they say: even Vlad publicity is good publicity.

What does this mean?

The West has been concerned that Russia might invade Ukraine for a few weeks now, and Russias decision on Monday to recognize the independence of two separatist Ukrainian regions and to subsequently install troops in both of them wont have done much to help matters. Investors certainly didnt like it one bit: global stock markets fell at the prospect of all-out war, and the prices of gold and government bonds soared as everyone rushed to buy safe-haven assets. The price of oil shot up by 5%, as the prospect of a disruption to supplies of the slippery elixir took hold. And with Russian sanctions looking more and more likely, the Russian ruble rounded things off by collapsing to a 15-month low.

Why should I care?

For markets: Inflation up, growth down.
Just the news that Russia the worlds third-biggest oil producer might be edging closer to an invasion sent the price of oil up to nearly $100 a barrel. That alone could put more pressure on the global economy, but JPMorgan has war-gamed a scenario where we hit $150 a barrel this quarter. If that happens, the investment banks forecast for global inflation in the first half of the year would double to 7.2%, and global economic growth would shrink from 4.1% to 0.9%.

The bigger picture: A lose-lose for central banks.
That combination of higher inflation and slowing growth would put central banks in a Catch-22. One of the best weapons in their arsenal to limit inflation is to raise interest rates even quicker than theyd planned, which would slow down borrowing and spending. But theyd also be aware that those same interest rate hikes would, by definition, only make the economic slowdown worse.

Originally posted as part of the Finimize daily email.

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