The Bad News: How Geopolitical Tensions Are Affecting Markets

At the beginning of 2022, inflation was rising sharply around the world, and all the attention of investors was riveted on changes in global monetary policy. The actions of central banks are still the dominant theme in the markets. But now traders have another reason to worry - uncertainty about how the situation on the Russian-Ukrainian border will develop.

Economists can at least try to predict the central bank's decision. They build models based on various data, evaluating the comments of officials and taking into account historical precedents. However, the result of the development of the situation around Ukraine is a kind of so-called "tail risk" (the risk of a very unlikely event that is often ignored. -). The way events unfold could have serious implications for the global economy. But these options cannot be modeled easily or accurately.

As a result, a sense of uncertainty began to creep into the financial markets.