Conflicts in Ukraine-Russia and West Asia may continue to escalate, according to a base case scenario projected by Jefferies’ equity strategist Christopher Wood in his latest Greed & Fear newsletter.

These conflicts may trigger a further rally in the oil prices at a time when the inflation issue is not yet fully dealt with. The rise in crude prices may not augur well for oil importers such as India.

Wood said he would be astonished if the world has witnessed the last of Israel’s actions against Iran following last week’s formalised response, though Israel can clearly bide its time in terms of when to implement a more telling response, with the obvious high beta play being an Israeli attack on Iran’s nuclear facilities.

The US Congress has agreed further funding for Ukraine to the tune of $61 billion. “It is clear that Ukraine can only continue to wage the war with the benefit of external funding... which raises the scary but growing prospect of a direct confrontation between Russia and NATO forces,” Wood said in his weekly newsletter.

According to Wood, the brief episode of “risk off” observed in Wall Street correlated world stock markets recently seems less to do with geopolitics than the impact of liquidity tightening. It will be interesting to see if the Federal Reserve follows through with the expectations it has raised of slowing the pace of quantitative tightening, he said. This is the intention strongly suggested by the release on 10 April of the Fed minutes of the March FOMC meeting.

If the Fed wants to slow the pace of balance sheet reduction, the rationalisation of such a policy becomes harder to articulate amidst current concerns of stronger than anticipated inflation and continuing evidence of a resilient US economy, Wood said.

Wood said there has been a surge in gold demand, albeit of a speculative nature, on the Shanghai Futures Exchange. The Shanghai Futures Exchange’s gold futures aggregate daily trading volume has almost tripled from an average of 2,25,442 contracts/day in the 12 months to March to an average of 5,89,318 contracts/day in April, peaking at 1.2 million contracts on April 15.