Positioning for a Ukraine ceasefire? Market implications from Trump-Putin talks in Alaska

The chances of a ceasefire in Ukraine may be rising, with US President Donald Trump due to hold talks with Russian President Vladimir Putin on Friday, 15 August. It follows a diplomatic thawing of relations after US special envoy Steve Witkoff visited Moscow last week, a fifth meeting this year and two days ahead of Trump’s deadline for a ceasefire to be agreed in order for Russia to avoid new sanctions. The result of that meeting was to set up a face-to-face this Friday.

The talks in Alaska are seen a possible precursor to a solution to the war, which could either take the form of a ceasefire and frozen conflict, or a more durable peace agreement.

Known Unknowns

To borrow a phrase from former US defence secretary Donald Rumsfeld, there are a lot of known unknowns to the outlook for a deal. For instance, it’s unclear whether Putin is really serious about peace or just keen on scoring a major diplomatic win by speaking to Trump on US soil.

And what of Ukraine? It’s unclear to what extent Ukraine’s President Zelensky or Europe will be involved in the upcoming talks. On Friday a White House official said that Trump is willing to hold a trilateral meeting with Putin and Ukrainian President Volodymyr Zelensky. "We have a shot at" organising a trilateral meeting with both Putin and Zelensky, he said. However it’s not clear whether Putin would agree to this.

Trump also indicated there "will be some swapping of territories" in order for Moscow and Kyiv to reach an agreement, something Zelensky rejected. "The Russians... still impose the idea of 'exchanging' Ukrainian territory for Ukrainian territory, with consequences that guarantee nothing but more convenient positions for the Russians to resume the war," he said on Telegram.

Trump is going over the heads of allies. A joint statement issued by the leaders of the UK, France, Italy, Germany, Poland, Finland and the European Commission reiterated that any peace talks - and a lasting solution – requires Ukraine’s involvement.

However, with Trump and Putin about to meet market participants are looking at the likelihood of hostilities ceasing. I do not want to make a prediction on whether this happens, but instead focus on the market implications of a ceasefire.

Ceasefire or something more durable?

Assuming hostilities cease, there are two scenarios: one is a frozen conflict with potential restart at any time, the other a more durable agreement that involves security guarantees and end of sanctions on Russia.

Of course there is another scenario. A relief rally could be expected should a ceasefire be announced – but the talks are as likely to underline the complexity of making a lasting solution stick, and make investors fret over the possibility of a peace accord. Markets have already started to imagine hostilities ceasing – the risk is that the talks highlight how far away this is from happening. Trump could lose patience and ratchet up sanctions and tariffs.

Whatever happens, there is little doubt among investors that we live in a structurally more fragile multipolar world. 

Market implications

The first scenario would likely have a less positive impact on European equity markets – a lasting peace would be preferable to a situation where both sides are able to rearm and rebuild their forces ready to go again.

A fragile ceasefire would likely only further support the case for European rearmament and increased military spending, which would offer further tailwinds for the defence sector. In fact, both ceasefire scenarios – as well as the third scenario of ongoing conflict, favour increased defence spending in Europe, so the market impact on defence stocks could be small as assumptions about higher spending are well discounted already.

If a deal leads to lower energy prices in Europe this could have a net positive impact on equities more broadly by reducing costs for businesses. However, a frozen conflict rather than a durable agreement would likely have limited impact on pricing. Dutch TTF gas prices have fallen significantly from their 2022 peaks but the spread with the US remains larger than it was before the invasion. 

A ceasefire or a lasting peace deal could allow for the rebuilding of Ukraine – which the World Bank estimates will cost $500bn. Rebuilding Ukraine could drive momentum for Industrials and Construction & Materials, and deliver a broad boost to growth in the Eurozone.

Airlines could see a positive tailwind from reopening Russian airspace.

Lower energy prices and easing of geopolitical concerns may result in improved consumer confidence in Europe, lifting discretionary spending. 

Gold – prices of the precious metal have doubled since the Russian invasion of Ukraine. There has been considerable discussion about gold’s role as a result of this rally – is it fundamental or does it just reflect a risk premium from geopolitical uncertainty? Whilst certainly the path of US interest rates, the dollar, inflation expectations and other economic considerations have played their usual role, we have clearly seen a geopolitical risk premium both as a result of the war in Ukraine and the Hamas attacks on Israel.

If a ceasefire or a more long-lasting peace agreed, it could result in a correction in gold prices, as the market would likely reduce the geopolitical hedge premia. However, the long-term narrative underpinning gold’s ascent would likely remain. There will be no masking the structural fragility of the multipolar world we now live in, which will surely maintain a bias towards a haven asset like gold, while central banks are not about to dial back their buying. America’s preference to broker bilateral deals will ensure central banks keep their preference for using gold as a currency.

Oil – an oversupplied market could become even more oversupplied. 2.5mn barrels a day nominally added this year from OPEC but producers are struggling to fill this quota. Increasingly markets are expecting that a thawing of the conflict could end sanctions that have limited the supply of Russian oil to international markets.  Following the Witkoff visit to Moscow and passing of the Friday deadline for sanctions, oil prices were falling as the US only hit India with an additional tariff rather than all buyers of Russian oil, as market participants scaled back their assumptions for market supply disruption. However, if there is a negative outcome and the conflict drags on, we could see a bullish repricing in crude markets.