As Putin eyes a date to declare victory, here’s a Ukraine scenario that could slam stocks by another 10%

Bringing that back into focus for investors is our call of the day from Edmond de Rothschild strategists, who lay out three possible scenarios for the conflict’s end. They all involve higher inflation, but varying degrees of economic and market risk.

The most optimistic outcome laid out by Michaël Nizard, head of multiasset, and fund manager Delphine Arnaud, involves a cease-fire and pullout of Russian troops from most of Ukraine — leaving Moscow to focus on Crimea and Donbas. Russian President Vladimir Putin would get to boast of victories for the May 9 holiday marking his country’s defeat of Nazi Germany in 1945 at the end of WWII.

Commodity prices would ease as vital Ukraine agricultural work resumes, easing the risk of wheat shortages for emerging countries. Energy prices would fall to preinvasion levels, helping reduce inflation and some easing of sanctions on Russia would also boost production circuits.

“A decline in risk aversion on the markets and the shock on consumer confidence would make it possible to envisage economic growth in 2022 close to the level expected at the beginning of the year,” said the pair, predicting U.S. markets could bounce 4%, Europe 8% and China 20%.

The second scenario envisages a stalemate, which could drag past the summer. “Although investors, like the media, gradually turn their attention away from the war in Ukraine, considering that the worst has already been priced in, the headlines would regularly return to the fore with events that could lead to fears of a shift of the conflict to a darker scenario,” said Nizard and Arnaud.

They raised the prospect of slowing activity in Europe, rationing, stoppages of agricultural work in Ukraine causing food shortages and unrest for emerging countries. A stalemate would lead to a 3% drop for U.S. markets, though modest gains for Europe and China.

They left the worst for last, a scenario in which the conflict escalates, as sanctions fail to work against Russia, or China boosts support to Moscow.

“In this scenario, our fears are a disruption of European gas supply via Ukrainian gas pipelines, NATO military intervention and an escalation of sanctions between the U.S. and China. Global growth would collapse and risk assets would see a 15% to 30% decline,” they said.

“We can wonder whether the financial markets have actually priced in the new status of the European economy, that of a war economy.”

Here’s their chart summing up those views:

The buzz

Tesla
TSLA,
-4.96%
shares are popping in the premarket, after the electric-vehicle maker posted a blowout first-quarter profit, with sales up 81% despite supply-chain problems. CEO Elon Musk also promised a robotaxi for 2024.

Opinion: Tesla rides higher prices to fatter profit, as Elon Musk complains about costs

Hedge-fund manager Bill Ackman has thrown in the towel on Netflix shares
NFLX,
-35.12%,
which logged their worst drop since 2004 on earnings gloom. Shares are down another 4% as one research house predicts a 50% drop ahead,

American Airlines
AAL,
-0.56%
shares are up 10% after upbeat results. Xerox
XRX,
+1.48%
are sinking 14% after the tech giant reported an unexpected loss. Snap
SNAP,
-8.53%
results are due after the close.

Weekly jobless claims dropped to 184,000, near a 53-year low, while the Philadelphia Federal Reserve manufacturing survey came in softer. Leading economic indicators are still to come. Fed Chair Jerome Powell and European Central Bank President Christine Lagarde will join a global economy panel discussion. We’ll also hear from St. Louis Fed President James Bullard.

Russian forces were ordered by Putin not to storm the last Ukrainian stronghold in the besieged city of Mariupol, but block it “so that not even a fly comes through.” That’s a massive worry for the thousands of the soldiers and civilians sheltering in a massive steelworker factory.

The markets

Stock futures
DJIA,
+0.71%

ES00,
+0.88%

NQ00,
+1.23%
are higher, with bond yields
TMUBMUSD10Y,
2.857%
also on the rise and oil prices
CL00,
+0.80%

BRN00,
+1.00%
getting a lift. The euro
EURUSD,
+0.33%
and European bond yields are up as a string of ECB officials talked up July rate increases. Asia saw a mixed session, with gains in Tokyo, but sharp losses for China stocks
SHCOMP,
-2.26%

000300,
-1.84%.

The tickers

These were the most-searched tickers on MarketWatch as of 6 a.m. Eastern:

Random reads

Never too old. For her 96th birthday, the U.K.’s Queen Elizabeth II will get her very own $75 Barbie.

Putin reportedly stopped his eldest daughter from flying out of Russia. She apparently had no plans to return.

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