A Trader's Guide to the Alaska Talks Between Trump and Putin
In the run-up to the talks, investors have been piling into assets that could stand to benefit from either a ceasefire in Ukraine or an easing of sanctions on Russia. Ukrainian government bonds have rallied, alongside shares of companies that would benefit from the reconstruction of Ukraine and European banks that still have a presence in Russia.
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The meeting has also added fuel to a broader rally in European stocks, already an outperfomer this year as Germany's fiscal spending boosts the economic growth prospects for the region.
'Whatever its ostensible outcome, the Alaska meeting marks the definitive start of the concluding phase of the Ukraine war,' said Christopher Granville, a managing director at research firm TS Lombard. 'Regardless of its short-term market effects, any pacification will reinforce the fundamental European investment case.'
Here's a look at various asset classes and how they're likely to be impacted by a potential resolution:
Stocks
Central and Eastern European equities have outperformed most global peers this year as hopes of a resolution of the war in Ukraine improves the economic outlook for the region. Benchmark indexes in Slovenia, Hungary, Poland and the Czech Republic are among the top 10 performers among 92 gauges tracked by Bloomberg.
In Western Europe, investors are focusing on themes like infrastructure and companies with exposure to the conflict. A UBS Group AG basket of stocks that would benefit from the reconstruction of Ukraine, like Schneider Electric SE and Siemens Energy AG, has climbed 32% this year to trade at a record high.
There's also been a slight rotation out of defense stocks, which are up over 70% this year as Europe, led by Germany, invests billions of euros to re-arm itself. A benchmark of defense companies has dropped as much as 6% from an July peak as the Alaska summit nears.
According to TS Lombard's Granville, though, a potential ceasefire could also boost European defense assets as the bloc would then need to increase military spending to deter further Russian aggression.
Elsewhere, Rajeev De Mello, chief investment officer at Gama Asset Management, said Indian equities and the rupee could gain if there's any sign that Trump will move away from secondary tariffs on Russia's trading partners.
Bonds and Currencies
Steven Barrow, head of G-10 strategy at Standard Bank, said a meaningful breakthrough in Alaska could trigger gains in the euro to levels not seen since before the Russian invasion in 2022.
'If there is any sense at all that a proper peace deal, or even just a temporary cessation of fighting, is possible, we could see the dollar slump and the euro, in particular, surge,' Barrow said. He sees the potential for the euro to trade between $1.20 to $1.25 for the first time since 2021, from around $1.16 currently.
Ukraine's dollar bonds are also in focus. They handed investors returns of 10.6% this quarter, the second-best performance among 69 developing nations tracked by the Bloomberg EM Sovereign Total Return Index. A positive outcome of the talks would also bolster bonds and the currencies from countries such as Poland and Hungary.
Commodities
Crude prices are trading near a two-month low going into the meeting. Citigroup Inc. warned this week that progress toward a deal to end the war could push Brent into the low $60s from about $66 now.
Meanwhile, gas prices have taken a pause in the run up to the meeting. While tangible progress on a ceasefire would be bearish for energy prices, it's unlikely that US sanctions on Russian LNG projects would be lifted imminently.
The conflict has also been a key catalyst for gold's long rally, with prices doubling from late-2022 to early this year. Any signs of a ceasefire could ease haven demand. Industrial metals like copper will be sensitive to any signs that Russia is on a path to returning to trading with Western countries.
What Bloomberg's Strategists Say...
'European stocks, oil, the euro and the Indian rupee are where the verdict will most cleanly be seen. While extreme outcomes are unlikely, there's enough dispersion in the consensus expectations to mean markets will react, no matter what transpires.'
— Mark Cudmore, Markets Live Executive Editor. Click here for the full analysis.
--With assistance from Sagarika Jaisinghani, Michael Msika, Anna Shiryaevskaya, Jack Ryan, Srinivasan Sivabalan, Peter Laca and Andras Gergely.
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