In the past week, Ukrainian troops have dealt a huge blow to Russia's grip on parts of the east of their country with a fast-moving offensive. The stunning campaign has kicked off a new phase of the war and could force Vladimir Putin to reconsider his strategy and objectives.
What's happening: Ukrainian forces have recaptured more than 1,160 square miles of territory in recent days.
The developments are helping lift stock markets. The war has been a major drag on Wall Street since Putin's invasion of Ukraine in February sent the price of energy and other commodities soaring. That made it harder to estimate when inflation would start to ease, and consequently to determine what central banks like the Federal Reserve would do next.
But investors remain cautious as they look ahead, warning that there are still too many unknowns to launch into a full-scale celebration.
"It's very difficult to know exactly what is going to go on in the war and what the next steps will be from the Russia side, so I think we can't really invest on the basis of that," Willem Sels, global chief investment officer at HSBC Private Banking and Wealth Management, told me.
On the radar: The situation is very fluid. Russia launched fresh air strikes on the Kharkiv region on Monday, targeting the city center and residential districts.
And regardless of what comes next, it may be too late to save Europe's economy from recession as the sharp run-up in energy prices compels households to spend less on non-essentials and forces heavy industry to shut factories.
Economic output in the United Kingdom stagnated in the three months to July, according to data released Monday. Meanwhile, Germany's Ifo Institute has slashed its estimate for growth in Europe's biggest economy.
"We are heading into a winter recession," the institute's head of forecasts said Monday.
Government packages aimed at supporting consumers could help prop up spending. The United Kingdom and Germany, along with other EU countries, have announced €500 billion ($507 billion) in subsidies for bills and other interventions aimed at softening the impact.
But central banks will likely need to keep aggressively hiking interest rates to get inflation under control. That will keep economic growth in check.
"It's likely that monetary policy will need to tighten much further to tackle the UK and Europe's generalized inflation problem effectively," Neil Shearing, group chief economist at Capital Economics, said in a note to clients on Monday.
The United States is more insulated from the Ukraine war, but it's still under recession watch as the Federal Reserve signals it will stay tough. China, meanwhile, is battling a real estate crisis and the impact of harsh coronavirus restrictions that continue to weigh on growth.
"Sky-high gas prices and aggressive monetary policy tightening have pushed the global economy to the brink" of a contraction later this year and early next year, Ben May, director of global macro research at Oxford Economics, said in a recent research note. "We expect a global recession to be avoided, but a sustained and substantial improvement in growth also seems unlikely."
That makes it hard for investors to get too energized, though they're hopeful there will be opportunities to use the ongoing turbulence to their advantage.
"We're also playing the volatility," Sels said. "You're going to have lots of ups and downs."
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