European stock markets are making modest gains at the end of the week but broadly remain in consolidation, as has been the case throughout the week.

We appear to have hit a point in which the initial shock has been shrugged off and markets have corrected back to a point where the economic risks are deemed to be priced in. In the absence of any significant developments, equity markets have come to a relative standstill and could remain that way until we see some progress.

Volatility remains in the commodity space which is contributing to the day-to-day fluctuations in equity markets. Higher commodity prices mean a further squeeze on the global economy this year and more inflation at a time when central banks are already accelerating tightening plans after falling behind the curve.

The flattening of the yield curve means we’re once again talking about recession risks and whether we’re about to see inversions that typically signal one is on the way. The Fed is of the view that the US economy is strong enough to withstand multiple rate hikes this year, perhaps even some supersized if need be, and the curve seems to agree just about. That could change if energy prices see further surges which could tip the economy over the edge.

Developments in Ukraine are also being monitored closely from negotiations with Russia to sanctions and the risk of escalation. The West continues to warn about the risk of Putin authorising the use of biological, chemical, or nuclear weapons which it has warned it would respond to. There were no details on what that would entail but NATO has repeatedly stated its opposition to direct interference. But even they may have a red line.

The fear is that the Kremlin feels backed into a corner as a result of the invasion not proceeding as planned and facing far more severe sanctions than it had anticipated. With more being drawn up and the EU slowly turning away from Russian energy, the consequences of the invasion will be substantial, starting with a two-year recession and soaring inflation.

As part of the EU reducing its reliance on Russian energy, it announced a deal to increase US LNG imports by the end of the year by at least 15 billion cubic meters. This is only a fraction of the gas it receives from Russia but is a step in the right direction as talks continue with other producers that will enable it to fill up stores ahead of next winter and eventually end the relationship in another blow to the Kremlin.