Global markets face shaky week ahead as US pressure mounts on Ukraine
Investors are watching for signs that the U.S. may move closer to Russia in a bid to exploit vast, untapped Arctic energy resources, in a major geopolitical shift that piles pressure on Europe to rapidly boost defence spending.
Trump and Russian President Vladimir Putin ended their weekend summit in Alaska without securing a Ukraine ceasefire agreement, with the U.S. President then saying he now wanted a rapid peace deal that Kyiv should accept.
Ukrainian President Volodymyr Zelenskiy is travelling to Washington on Monday for talks that leaders of nations including Germany, the UK and France will now join.
"Trump seems inclined to reduce or even end US support for Ukraine. Putin got him interested in business deals," Berenberg Chief Economist Holger Schmieding said in a note to clients.
"As a result, the US may lift its sanctions on Russia and invest in Russia instead," he added.
"Europe will have to spend a lot more for its own defence."
Investors have bet on that outcome since February 2022, driving a supercharged rally in European aerospace and defence stocks (.SXPARO), opens new tab with gains of over 600% for Leonardo (LDOF.MI), opens new tab and 1,500% for Germany's Rheinmetall (RHMG.DE), opens new tab.
The euro has rallied 13% against the dollar this year and traded at about $1.17 on Friday.
Bank of America strategist Michael Hartnett highlighted the potential for U.S.-Russia Arctic drilling projects to exploit 15% of the world's undiscovered oil and 30% of the world's undiscovered natural gas, resulting in a deep energy bear market.
Brent crude, which dropped more than 1% to near $66 a barrel, on Friday, was still priced for a Ukraine peace deal, Hartnett cautioned, while Trump wanted lower energy prices for U.S. consumers .
Ukraine's government bonds - key mood indicators - rallied when news of the summit emerged earlier this month but have stalled at a still-distressed 55 cents per dollar.
"I would think they will be a bit weaker following the recent strength as the mood seems to favour Russia following Friday's summit," Aegon Asset Management head of emerging market debt Jeff Grills said.
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Although the Kazenyi Torets river runs through four major towns and is flanked by a railway and a road, you could drive the length of its valley without setting eyes on it. Hidden for most of its length by a thick band of marshy woodland on either bank, its waters are mostly left to kingfishers and frogs. Crucially, though, this placid river runs through the centre of the last quarter of Donetsk region held by Ukraine, and the string of towns on its banks have been forged into a fortress – a near-impregnable stronghold that has resisted Russian attacks for more than a decade. Eleven years ago, I watched the war in Ukraine begin on its banks. Three years ago, I sat again by the river and wondered as Russian shelling grew closer if it was the last time I would see it. Now, it is at the very heart of contentious negotiations to end the war. Vladimir Putin has written all of Donetsk region into the Russian constitution and has made clear he wants the entire region – especially this last, defiant valley – as a price for peace. Donald Trump appears to be ready to push Volodymyr Zelensky to make such a trade. Steve Witkoff, Mr Trump's special envoy to Russia, said on Sunday there would be an 'important' and 'particularly detailed' discussion about the fate of Donetsk region when Mr Zelensky arrives in Washington on Monday. Mr Zelensky is reluctant: 'Russia is still unsuccessful in Donetsk region and Putin has been unable to take it for 12 years,' he said on Sunday, saying discussions about land swaps there are so important they should only be discussed bilaterally between Ukraine and Russia. To understand why Russia covets it so much, and Ukraine refuses to give it up, it is worth looking at a map. Here's why the 'Donetsk fortress' matters: Terrain Upstream, at the southern mouth of the valley, lies the city of Kostiantynivka. It is followed by Druzhkivka; Kramatorsk; and lastly Sloviansk, where it arcs to the east before meandering through a flood plain of reedbeds and reservoirs until meeting the Siversky Donets – the principal river of the Donbas. In fact, the very word, Donbas – used to describe the coal rich east of Ukraine now largely occupied by Russia – is a contraction of 'Donets Basin'. The irony is that the area's geological past means that this part of the basin is in fact a highland. And as a highland in a vast area of plain, it has huge strategic, military significance. True, these are not the Himalayas; the highest point is a little over 300m above sea level, and the incline is so gradual that if you were not paying attention you might not notice it. But nonetheless, it is a highland – a network of ridges and valleys that stands above the great Pontic Steppe that dominates the southern half of Ukraine and Russia. The Torets cuts a valley through the northern western extremity of this upland. On its right bank in particular, the land rises steeply to a ridge on which sits the town of Chasiv Yar and the current frontline. Today, those slopes and ridges are riddled with Ukrainian defensive lines built up over more than a decade. Inclines have been measured, deadground paced out, the rise and fall of the land integrated into kill zones and artillery ranges. This, in other words, is a valley that guards the entrance to the central heart of Ukraine, protecting it. Not just that, but it is a bastion protecting the whole of the current front line. Should it fall – or be handed over – not only will the Ukrainian steppe behind it be open, but Russian troops would have a platform to encircle Ukrainian forces both to Kharkiv in the north and Zaporizhzhia in the south. If Ukraine is forced to give it away, then, holding the frontline, or even defending the rest of the country at all, would be immeasurably harder should Russia decide to attack again and seize the territory which Putin still calls 'Novorossiya' – New Russia. Infrastructure Armies are, at the end of the day, very large groups of people. And like any large group of people, they need places to sleep. And places to eat. They need to get around, they need fuel, they need hospitals and coffee shops, and all the other things that most of us take for granted. In other words, they need a city. When Ukraine lost control of Donetsk, the regional capital, in 2014, it was left at a major disadvantage: the enemy possessed the most comfortable and advanced cluster of infrastructure between the Russian border and the central Ukraine city of Dnipro. The Ukrainians were left with the villages outside that had relied on the big city for much of their economic well being. The country towns of Kramatorsk, Sloviansk, Druzhkivka and Kostiantynivka were the next best thing. It was a landscape of post-Soviet neglect: a derelict glass factory that had once made the stars to adorn the top of the Kremlin; the distant slag heaps of the mining towns; towns mostly made up of small houses where many people scraped a living from their allotments; a road linking them that even before the war was badly in need of resurfacing. But served by a major railway and a highway that connect all four towns to both Kharkiv and Kyiv, the valley was convenient for logistics, for resupply and medical treatment. And there was just enough of a domestic economy to serve the rest of the army's needs: from supermarkets to pizza joints and petrol stations. Over time the conurbation – the towns sometimes seem to run into each other as you tumble down the H20 highway – was turned into both a fortress and an economic and logistical centre. Kramatorsk's military airbase, which lies on the ridge on the eastern side of town, became the command centre for the eight-year, low-level war fought between 2014 and 2022. It was not without friction. The influx of soldiers caused tensions. A portion of the local population was always sympathetic to Russia. Even after the full-scale invasion it was possible to meet locals who would admit – nudge nudge, wink wink – that their views had not changed. Since the invasion began, the towns have taken on even greater significance. Kostiantynivka was the logistics hub to support both Bakhmut, Chasiv Yar, and Toretsk during the Russian assaults on them. Further north, Sloviansk and Kramatorsk have acted as the rear areas for battles around Lyman, Izyum and the ongoing struggle in the Siversk Salient. If the valley falls, the Ukrainians lose not only fortifications and favourable topography: they lose the urban logistics and infrastructure that make it possible to sustain an army and a defence. And don't forget the several hundred-thousand civilians who call the valley home. Many have even moved back after fleeing at the start of the full-scale invasion, reasoning that Kramatorsk is at least as safe – or safer – than other parts of the country. The next possible defensive towns – Izyum and Bavinkove in the Kharkiv Region, Petropavlivka in Dnipropetrovsk Region – either lie dozens of miles away or will be left vulnerable, their flanks open, if the Torets valley fortress falls. History Putin's interest in this corner of Donbas is partly political: he has told the Russian public that his goal is to liberate the whole of the Donetsk and Luhansk regions, so he needs to capture it to be able to claim a victory true to his word. Not since French general Robert Nivelle declared the Germans 'shall not pass' at Verdun has a fortress town taken on such political and emotional, as well as strategic, significance. This, in fact, is where the Russo-Ukrainian war began – in April 2014 when a handful of heavily armed desperadoes led by a Russian intelligence officer called Igor Girkin stormed into the town hall, police station and security service office in Sloviansk. They quickly moved on to other towns down the valley and over the hills, storming police stations and abducting, torturing and murdering opponents as they went. Two of their victims – the local councillor Volodymyr Rybak and a teenage activist called Yuri Poporavka – were tortured to death and dumped in the Torets. The Ukrainian recapture of Sloviansk and the rest of the Torets valley in June that year was their first big success of the war – in fact, the first time the Ukrainian military proved it could take on and defeat Russian-led forces. Ever since, Sloviansk in particular has become totemic to both sides. To the Russians, it is the birthplace of their astro-turfed, FSB-led 'rebellion' that provided the excuse for invasion. To the Ukrainians, it is the ground zero of their battle for national survival. The legend has been magnified 1,000-fold since the full scale invasion. In the summer of 2022, the Ukrainians stubbornly defied a Russian attempt to storm the fortress valley from two sides. The enemy came within earshot of Sloviansk from the north, the rumble of Russian artillery creeping closer by the day. But they were never able to get into the valley before they were thrown back in a Ukrainian counter offensive. Ever since, Russia's operations – from the nine-month battle for Bakhmut to the current assault on Pokrovsk and Toretsk – have been directed ultimately at Kostiantynivka, Druzhkivka, Kramatorsk and Sloviansk. So many Ukrainians have now died trying to defend and hold the fortress belt towns; so many men and women from all over Ukraine know the valley and its potholed highway; so many have stopped for their last coffee before the front at its petrol stations that surrender is almost unthinkable.
