The markets are doing a lousy job (again) of predicting a ceasefire in Ukraine

Did the markets get ahead of reality with yesterday’s “peace” rally? Or, were investors spot-on in reading a positive first step in the Russia-Ukraine negotiations in Istanbul, one that could eventually lead to an end to the Kremlin’s brutal bombardment of its neighbor?

Before we answer that, let’s recap: The Dow Jones Industrial Average and S&P 500 rose Tuesday for a fourth straight day, with tech stocks leading the way higher. Investors cheered as oil prices fell again. Risk assets performed even better in Europe with the Europe Stoxx 600 closing at its highest level since Feb. 17. According to Deutsche Bank, the benchmark European index had recovered 13.9% between that day in mid-February and yesterday’s close.

And this morning? More skepticism abounds. A lot more. As the New York Times reports, diplomats and analysts in the West feel as if “Moscow seems in no hurry to end the war.”

The markets now seem to be reading that loud and clear. The European bourses were down across the board at the open this morning, wiping out a good chunk of yesterday’s gains after Bank of England deputy governor Ben Broadbent warned that Vladimir Putin’s invasion of Ukraine will inevitably create stagflationary conditions of higher inflation and lower growth.

U.S. futures also were edging lower, as there’s more chatter America is heading for recession. The U.S.’s troubles are more of the home-grown variety, however. While investors are feeling anxious about America’s short-term economic prospects, they are downright pessimistic about the economy further down the road. (If you hear market chatter today about yesterday’s brief “2s/10s inversion,” that’s the upshot of the argument.)

The reversal we’re seeing this morning in investor risk appetite is a good reminder—as if we needed one—that markets too often trade on incomplete information, and that just adds to the overall volatility. And whenever you have war or Putin involved, you can bet the information is anything but complete. Add it all up, and it’s probably not a great idea to take any war-and-peace cues from the markets.

As UBS chief economist Paul Donovan reminded clients this morning, “expertise in trading financial markets does not necessarily correlate to expertise in military matters; at this stage, market moves should be taken as volatility from trading headlines.”

I know. That’s a deeply unsatisfying answer from Donovan. So I won’t leave today’s markets wrap on that note. Instead, let’s go to another economist—Holger Schmieding or Berenberg Bank. If we’re looking for promising clues about a true de-escalation, Schmieding thinks we should focus our attention on places like Kyiv and Odessa. If, in a few weeks time, these regions “are less at risk than before,” he reckons, “the consequences could be significant.”

How significant? He sees three potential positive outcomes should relative calm persist in places like Kyiv, Odessa and a few other border regions close to Russia a month hence. They include:

1) No further sanctions against Moscow, and no move for a full EU embargo of Russian energy imports, “which would be costly for both sides.”

2) It would give Ukrainian farmers the cover to go ahead with the already-late spring planting, posing less of a disruption for Ukraine’s vital wheat and corn exports. The world cannot afford to see a major disruption of Ukrainian food exports.

3) Most importantly: a slowdown of refugees into the European Union.

On point 3, the situation is truly dire. The UNHCR reports that the invasion has forced 3.87 million Ukrainians to flee the country. This is the worst humanitarian crisis in Europe since World War II.

That’s the number your correspondent will be watching most closely. Not the ups and downs of the S&P.

Bernhard Warner
@BernhardWarner
bernhard.warner@fortune.com

TOP NEWS

Omicron and boosters

More than half the COVID cases in the U.S. now are of the Omicron BA.2 variety, says the Centers for Disease Control and Prevention. (Personal note: Don't underestimate this little baddy. I was laid low for a few days earlier this month with BA.2. It then went on to infect the whole of Casa Warner...though we're all negative again.) On cue, the FDA has approved a new round of Pfizer and Moderna COVID boosters for adults 50 and older. New York Times

The billionaire tax

One of the most talked-about points in the Biden Budget proposal is the "Billionaire Minimum Income Tax," which seeks to hit America's top 0.01% with a $361 billion hike over the next decade. Fortune's Alicia Adamczyk looks at the fine print to see what's in the plan—and what's not. Fortune

$615 million crypto heist

In my cub reporter days, I used to cover the police beat. That meant reporting on the occasional—okay, more than "occasional"—bank heist. Did you know: FBI data shows that bank robberies occur most often during mid-morning hours? I have no idea if the FBI has time-of-day data on crypto heists, but they seem to be on the rise too. Exhibit A: the heist of Blockchain project Ronin, which just netted hackers $615 million in crypto loot. Fortune

IPO quiet period

18. That's how many new public listings we've seen so far in Q1. And these IPOs have managed to raise just $2.1 billion. That all amounts to a six-year low. Jessica Mathews, in her latest Term Sheet newsletter, explains what's gone wrong in the U.S. market for IPOs (and yes, that includes SPACs). Fortune

AROUND THE WATERCOOLER

On the rise (and occasional crash) of "killer" drones

Yesterday I learned this data point from Jeremy Kahn's amazing and kinda frightening piece about the proliferation of A.I-enabled lethal drones that are dominating the battle field (and sky above it) in Ukraine: that the global market for such "killer robots" will hit $30 billion by the end of the decade. The business is booming, but there are still plenty of kinks in the technology to work out. Fortune

Rethinking GDP

GDP has been the gold standard of computing national wealth for a good 85 years. That hasn't stopped all manner of economists, policy wonks and heads of states from taking shots at it for nearly as long, arguing it misses out on what society truly values. The latest to suggest an alternative to GDP is the research firm L'Atelier. Their measure—which amounts to a national ranking, actually—highlights the countries where social mobility is proving increasingly elusive. More controversially, their calculations show the United States and Great Britain lag well behind their OECD neighbors in this important measure. Bonus read: why workers tend to lose out when the company hires an MBA boss. Fortune

The $300 billion crypto Goliath

The billionaire crypto king Changpeng Zhao is undoubtedly one of the most successful entrepreneurs of our times. C.Z., as he's known, has helped build Binance into a crypto exchange juggernaut that some value at $300 billion. C.Z. recently sat down to speak with Fortune's Vivienne Walt. He dished on his vision for the crypto economy, and where Binance is looking to invest next. It's a must-read profile of a fascinating company that just turned, yeesh, five. Fortune

This edition of CEO Daily was edited by Bernhard Warner.