Goldman with the note.
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We are asked increasingly how much (Ukraine/Russia) geopolitical risk premium is now priced into a range of global assets. It is always difficult to be precise, but in order to answer this question, in this Daily, we proceed in two steps. First, we examine how global assets moved during sharp shifts in perceived geopolitical risk in February. Then, we use these moves, together with estimates of how much risk premium could be either priced out of the Ruble (in a ‘de-escalation’ scenario), or further priced into the Ruble (in a ‘RUB maximum undervaluation’ scenario), to benchmark moves in selected global assets.
Among other results, our simple benchmarks imply a discount of around 5% on SPX, 8% on Eurostoxx, 25bp on US 10s, and close to 2% on EUR/$, with larger discounts in European satellite currencies; and we estimate that gold is trading at around a 5% premium based on the geopolitical risks that have been priced year-to-date.
