JPM's Three Scenarios Of How The Ukraine Conflict Plays Out

Tyler Durden's picture

With USDJPY algos, and thus the S&P, reacting as if stung like bees by every fabricated headline emerging out of Ukraine (only to reverse the move promptly after once the market realizes the biggest war in Ukraine continues to be one of disinformation), there appears to be far more confusion about how the Ukraine conflict will play out than what the Fed will do (recall that everyone is certain today Yellen will release even more dovishness). So to help out with the confusion here are three scenarios and trades from JPM, on how the Ukraine conflict may play out, if only in capital markets.

The market continues to be headline driven, with frequent surprises, since the onset of the Ukrainian crisis in March, yet the signs of de-escalation are emerging more frequently. We try to address the “what’s next and what to do” among investors’ FAQs. The effect of the crisis and sanctions becomes clearer through performance comparisons for Russia vs. EMs with more granularities provided through the industrial sector indices’ comps. Not surprisingly, the biggest damage can be seen in Energy and Financials, as both have some major names already sanctioned. These remain in a risk zone, yet it’s fair to assume that the de-escalation would warrant a symmetrical recovery trade. We assess the potential scenarios and strategies here.


Conceptually, the nature of the negative effects should be two-fold: (A) A higher risk premium related to deterioration of earnings visibility and investability of shares; and (B) the macro impact on earnings expectations through top line and FX hits. Both are visible in the general and sector index performance comparison in the table below.


Scenarios and trades. The gap analysis suggests the following scenarios and trades:

  1. the positive “de-escalation” scenario triggering gradual sanctions removal, and moderate acceleration of the macro environment could see the repetition of the April-July rally (~15% upside) with the most pronounced catch-up in Financials;
  2. the “status quo” scenario – Russia distances itself from Ukrainian events yet the conflict drags on and fades into the cold season with no further sanctions, triggering reduction of risk premiums benefiting the three laggard sectors (EN, FN, TC);
  3. the negative “escalation” scenario: the impact would match the extent of the additional sanctions’ scope and depth; at the extreme, investability of  the market could be severely impaired.

In focus: the next big catalyst is a high level Russia/Ukraine/EU meeting in Minsk on August 26


Stock-specific performance is illustrative. The July-to-August trough and the recovery from the August low is shown in the chart below. We show the names with the most negative performance combo, featuring many of the sanctioned names.


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Doubleguns's picture

Let me guess they are undecided which one they will use. 

Nozza's picture

You wouldn't want him as your Best Man...

Latina Lover's picture

My favorite scenario is where JPM gets nuked...

fonzannoon's picture

how does jpm figure in the terrorist attack that we coordinated for the fall in nyc? also an initial selloff that immediately corrects itself?

what's that smell's picture

scenario #1: JPM makes a shit load of money.

scenario #2: JPM makes a truck load of money.

scenario #3: JPM makes a lot of money.

101 years and counting's picture

JPM writes all the playbooks and they all follow along.  its a banker's world.  and yes, Putin goes by the playbook as well.  he's paid very well to do so.  

JustObserving's picture

If the fearmongering on ISIS does not cause you to willingly give up more of your freedoms and divert your attention from a collapsing economy,  then escalation in Ukraine is the only logical scenario in the home of the slave.

Besides, the demonization of Putin by the free media of the West was going so well - it would be a shame to waste it:

Picking up on the scent, the CIA attack dogs in the US and European media blamed the crash squarely on Russian President Vladimir Putin. The cover of the July 28 print edition of German news magazine Der Spiegel showed the images of MH17 victims surrounding bold red text reading “Stoppt Putin Jetzt!” (Stop Putin Now!). A July 26 editorial in the Economist declared Putin to be the author of MH17’s destruction, while the magazine ghoulishly superimposed Putin’s face over a spider web on its front cover, denouncing Putin’s “web of lies.”

Anyone comparing the media’s demonization of Putin with their treatment of Saddam Hussein or Muammar Gaddafi had to conclude that Washington was launching a campaign for regime change in Russia like those it carried out in Libya and Iraq—this time, recklessly pushing the United States towards war with a nuclear-armed power, Russia.

cowdiddly's picture

You can not build mathematical model that will predict how much human emotions of fear and greed an event will create or how much these two will feed on themselves. Period. Thats your problem smart guys. ANd I dont care How close your R values correlate it.

And since everything you guys do is based on some freaking model its only a matter of time before you get that huge outside tail dot in your insane derivatives never never land that brings this whole stinkin shitshow down.

LawsofPhysics's picture

 please, shut the fuck up Dimon.

War with your children, another reason he is "richer than you".

Martin Silenus's picture

Whole thing has farce written all over it; everything does.  Bias and lies run through all aspects of whatever shit someone's selling.  Trust no one, except close friends and family.

El Hosel's picture

Another three  ... fuck you, fuck you, fuck you JPM.

Spungo's picture

Scenario 4: everyone at JPM dresses as a muppet for halloween

q99x2's picture

Arrest Jamie Dimon for financial terrorism.

geno-econ's picture

Rough winter for Ukranians means IMF will have to extend more loans that will never be paid back with US also printing to pay for upcoming escalation in Middle East. Sounds like China and Russia may be winners by just watching financial/currency/bond implosion which is how most Empires crumble.  Enjoy while you can but prepare for tough times.


Mercantilist's picture

JPM has really missed the mark here.   The best strategy for Moscow is to wait it out until the winter months.  The IMF has forced austerity on Ukraine and its not going to be long until those winter gas bills seed discontent among the masses.  The best thing that Russia can do now is keep supporting the resistance from the sidelines, make no overt moves and be their supplying aid and good cheer to the Ukrainians who are about to realized that the west, through the IMF, are going to impose economic pain on Ukraine (that will be the propaganda statement anyway).   Ukraine has been a politically unstable place for a long time, the west may have finally gained a foothold, but when winter comes, you watch....the seeds of discontent will grow and Russia will be standing in the wings with open arms...

And lets not forget that Ukraine's millatary machine is Russian supplied.  What happens when they need replacement parts?  The West hasnt agree to supply them with war equiment yet (at least not leathal); and, even if they do supply, who is going to pay for this?  The IMF, the US?  We are not talking about a small amount here, for the West to supply Ukraine will mean a total upgrade and it will be seen as an aggerssive act by Russia.   This is a game or attrition and patience.

How this all ends, is very much still very open.  But for sure, it is highly unlikely Russia will just sit back and do nothing, especually with media attention off Ukraine and focused on the middle east.   They are going to remain an irritant and wait for a political oppotunity to put there man back into power....its now just a waiting game, similar to the west position before the outser of Yanukovych.

clade7's picture

Hmmm...well thought out, lucid, informative, displays vision, somewhat punctually accurate,...shows us you are a problem solver and have a strategic mind...Thumbs up!

Quinvarius's picture

Escalation seems to depend more on the insanity of the Western Ukrainians than what the Russians do.  If those guys had a nuke they would have set it off in Moscow by now.

financialrealist's picture

scenario 4: something else

SmittyinLA's picture

If the EU doesn't take control of Russian/Ukraine food petro assets, their growing muslim/African mob will burn the place to the ground on free shit demands, printing has its limits and the EU has reached "peak printing".

All about immigration

SmittyinLA's picture

The only scenario is this, EU gives up, and is forced to pay world market rates for Russian OIL & gas and Ukraine crops, every year forever.

There is no other scenario, even if Putin were wacked today, his replacement would be much harsher.


PTR's picture

1) JPM

2) Wins

3) Again

johnmack's picture

keep in mind you guys are talking about the same people who said brazil would win the worldcup