Last week I laid out my second-half outlook. I will follow up on that outlook here today, but it seems appropriate to start with the events that played out in Russia over the weekend.
The Wagner Group of mercenaries, led by Yevgeny Prigozhin, took over a military base in Rostov-on-Don and then headed toward Moscow. Russian President Vladimir Putin was apparently unable or unwilling to stop it (it should be noted that the "revolt" did not spread to the regular military or other security groups within Russia). It concluded with a deal that allows those involved to go to Belarus.
This action could hasten a peace deal between Russia and Ukraine. Putin clearly looked weak and on the surface lost one of his most effective fighting forces in Ukraine. It seems likely that China, which already seems to be nudging Russia toward some sort of peace, will push harder in this direction. Chinese President Xi Jinping's ties to Putin go from being a strength to a potential weakness if Putin flounders.
From a markets standpoint, I don't think a peace deal would do that much. Europe should outperform the U.S., but the nature of global energy trading has changed. Russia is too entrenched with China and India to resume selling massive amounts of commodities to Germany. Ukrainian production of natural resources likely will take time to come on line and will be expensive to rebuild. It would be better than today's status quo, but not that much (I would have written this section much differently a year ago, before new relationships became crystalized).
There is a chance that Putin lashes out and retaliates, which likely would prolong the war, but don't expect much of a market reaction.
If this is just stage one of an attempt to wrestle power from Putin, the next phase, probably weeks or months away, could help unseat Putin and whoever takes control, even if it is a "bad person," likely would try to extricate themselves and the country from the fighting in Ukraine. Again, a step toward peace, but not much of a market event.
On the wild side of things (and what isn't wild about this whole episode?) is the potential that this fighting was staged to give a "rogue" group more freedom, using Belarus as a base. Seems weird, but given Russia's mastery of "false flag" events, I'm not sure we can trust everything we see. If this turns out to be the case, we could see a flight to safety as it creates new risks in the region.
The Economy
From China to Europe to even the U.S., we received data that were tilting to the weaker side last week.
Jobless claims have been ticking higher. That is something to watch as I continue to believe that the official data is struggling with adjustments around the seasonality of hiring.
New home sales have been good. However, that isn't necessarily a reflection of a great economy, but rather more a reflection of many people moving to new regions, which is typically good for new home sales. It isn't a bad sign by any stretch of the imagination, but it probably overstates the strength of the economy.
I continue to watch and believe that as data come in we will see recession risk gather traction again with a Fed that has a very high hurdle to cutting rates. I am not paying much attention to Fed speakers as over the next six months, unless something drastic happens, I don't see the fed funds target mid-rate (it provides upper and lower bounds) to be less than 4.875% or more than 5.625% versus 5.125%. It's a narrow range and one that won't drive markets. That view, which is probably consensus, means that economic weakness won't be followed by immediate easing - something we haven't seen in decades.
Good luck and remain cautious, though not too scared.