Statements from the Ukrainian side are perceived as positive in the sense that they feed the possibility of the crisis returning to its pre-2022 position. The previous day, the possibility that Zelensky would not insist on Ukraine's NATO membership and that Putin's demands to end the war would be accepted, indicated at the door the possibility of a diplomatic solution to the crisis. Of course, the Antalya talks at the level of Foreign Ministers are also important today.
Of course, the demands conveyed by Russia include seemingly harsh conditions: accepting the special status (independence) of Donbas, abandoning NATO membership, neutrality, reducing the defense budget, accepting that Crimea is Russian territory… Ukraine is militarily and economically alone, the sanctions to harm the Russian economy have not interrupted military operations, and Ukraine is also threatened with economic collapse due to the war on its territory. If there will be no NATO intervention, the continuation of Ukraine's resistance in the big cities cannot be permanent with the violence of the war.
Sources from Ukraine, Zelensky's deputy, state that the parties will have serious negotiations to end the 8-year war, and that Ukraine does not take a stance against neutrality in return for security guarantees. The reaction of the markets is positive, the effects of the Russian embargo may be relieved with a peaceful solution, and the markets may have priced in a possible economic crisis sufficiently. The rally in spot indices and the decline in commodity prices, especially oil, are related to this.
In petroleum; First, the possible Russian deficit is being tried to be closed by returning the oil in OPEC to the markets, and the re-entry of Russian oil to the markets may also ease the prices. Another case; The United Arab Emirates later said it would call on the OPEC+ alliance to increase oil production faster, although the energy minister seemed to have softened that message. As of yesterday, the USA stopped all energy, oil and gas imports from Russia. Britain, on the other hand, stopped only oil imports.
So how will the economic outlook evolve from this point? War conditions will of course make Central banks more dovish, but data and crisis impact asymmetry will cause the Fed and ECB to differentiate their priorities over each other. The situation of the USA, which is 3% dependent on Russian oil, and Europe, which is 40% dependent, is not the same. Therefore, it is understandable that the Fed attaches more importance to inflation, and although it cannot intervene in the global oil supply with monetary policy, it will still raise interest rates in order to protect the anchor while inflation expectations deteriorate. Europe, on the other hand, has to see the crisis conditions ease if it wants to tighten financial conditions, as it is more dependent on war conditions and economic progress will be directly affected. We will see how the current situation will reflect in today's statement. The FOMC is in blackout mode this week and the first rate hike is coming this week.
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