Volodymyr Zelensky’s open letter demanding face-to-face talks with Vladimir Putin has sent ripples through the markets, but the City is not buying the narrative of a sudden thaw. This is not a peace dividend in the making. It is a high-stakes gamble from a leader running out of chips.
The Ukrainian President’s plea, backed by Britain’s push for a decisive peace effort, smacks of diplomatic theatre. Let us not forget: Putin has shown zero appetite for genuine negotiation. The Kremlin’s response will be telling. If they dismiss the offer, as expected, expect a sell-off in Russian-linked assets and a spike in defence stocks. If they engage, we might see a temporary rally in European bonds, but don’t hold your breath.
From a fiscal perspective, this is a distraction from the real crisis: the West’s dwindling appetite for funding Ukraine’s war chest. The UK’s renewed gusto for peace talks is a convenient way to mask the uncomfortable truth that the Treasury is tapped out. Gilt yields are already under pressure from sticky inflation, and another round of military spending would only worsen the fiscal arithmetic.
Market volatility is the only certainty here. The VIX could see a jolt as traders price in the tail risk of a sudden ceasefire or, more likely, an escalation. Capital flight from emerging markets is already a concern, and this geopolitical theatre will only accelerate the search for safe havens. Gold and the dollar stand to gain, while the rouble faces renewed headwinds.
The bottom line: Zelensky’s letter is a desperate move, not a strategic one. Investors should brace for more uncertainty, not peace. The only decisive push we are likely to see is a push for higher yields on UK gilts.
