Le week-end de la rébellion

Even if the apparent resolution of the Wagner Group rebellion leaves Putin weakened but still in power, the episode may should remind us that there is no easy scenario under which a peace settlement even remotely favourable to Ukraine could co-exist with stability in Russia, and that the most obvious alternatives to Putin are within the nationalist camp. The West is in “for the long haul” in the Ukrainian war and the management of its aftermaths.

Over the last few months, the Ukraine war had faded from the macroeconomic radar. For now, the chances of avoiding a replication of the extreme tension on energy prices later this year are substantial. The share of China in US exports of LNG has not picked up, leaving space to replenish European inventories. As of last week, the EU’s gas reserves stood at 75% of storage capacity, 20 points more than at the same time last year.

The BOE’s 50 bps hike, coming on the heels of yet another upside surprise on inflation, is an attempt at restoring its credibility. A key question for the UK now is how the government – present and future – will handle social demand for fiscal support to offset the pain of a recession which will be the natural result of the BOE’s latest decisions. We think PM Sunak and Chancellor Hunt will resist this temptation however, and we would be surprised if the Labour opposition took liberties with fiscal rectitude in its electoral manifesto next year. The UK is now under strict market surveillance, but a steadfast fiscal stance should help avoid a more significant drift in yields.

Hawkish talking by the Fed, the resumption of “jumbo hiking” in the UK and the end of the pause in Australia and Canada are creating the impression that a large wave of additional tightening is coming in the global economy, defeating hopes that the “peak” is in sight. However, we continue to see more cracks appearing in aggregate demand. The latest slump in the Euro area PMI in another piece of evidence.