Thinkpad: A VUCA World

Hope you're having a good weekend.

Elections dominated the week's newsflow, though eventually the outcome perhaps did not hold large surprises. The Bharatiya Janata Party claimed victory in four states, including the most closely watched Uttar Pradesh. The Aam Aadmi Party won in Punjab, hopefully bringing change to the state's messy politics and a messed up economy.

We'll leave the political analysis to those who do it best but from a macro standpoint, with the state elections out of the way, the government can perhaps go back to focusing on the economy and some important decisions that await it.

There are near-term decisions like fuel price hikes and longer-term decisions like what follows in place of the failed farm laws. Somewhere in the middle there is progress to be made on asset monetisation and privatisation; money to be spent on capital expenditure.

If one implication of the state election verdict is that the central government is feeling emboldened, will we see it move quicker on some or all of this now?

It may, of course, have its hands full trying to understand the implications of the Russia-Ukraine conflict, which entered a third week. The implications of the crisis continue to play out locally and globally.

The U.S. and U.K. administrations moved ahead with sanctions on Russian energy, while Europe stayed away. This dulled the overall impact but still brought on huge amounts of volatility in the commodity markets.

The story of Nickle stood out this week. A surge in prices, a billionaire with a large short position, an exchange going the extra mile in protecting positions — the story has all the making a Netflix series. You can catch up on it here if you missed it.

Back home, the Indian rupee hit a record low. Frankly, it was only a matter of time that it did and, apart from headline value, it didn't actually mean much. The depreciation was orderly, the central bank stepped in as expected and by the end of the week, the rupee had rebounded. That's not to say that pressure or volatility won't persist. "The sensitivity of the rupee to Brent crude oil prices triples beyond the $100-a-barrel threshold, and its sensitivity to dollar strength doubles," said Divya Devesh of Standard Chartered. You can get an overview of what is expected on the currency here.

Gold surged, too, in the early part of the week, before climbing down as risk appetite approved. But as BQ asked in this piece — with high inflation, geopolitical risk and central banks relooking at their reserves strategy, could gold stay in focus?

Lest you think that Thinkpad is ignoring the crypto universe, this week's big news (or at least the crypto world believed it was big) was that the U.S. administration asked regulators to coordinate, study the space and come back with recommendations. The crypto world saw this as a precursor to a clearer regulatory framework.

Next week will bring an all-important meeting of the U.S. Federal Reserve. Will the Russia-Ukraine conflict give the central bank second thoughts or does it have no option but to power on with monetary tightening as inflation hits 40-year highs. Former Fed chair and now U.S. treasury secretary Janet Yellen said inflation could worsen amid the ongoing conflict but does not see the risk of a recession.

As a precursor, the European Central Bank's meeting this week also struck a hawkish note, signalling its plan to end asset purchases in the third quarter of this year.

We're only in the first quarter of 2022. A lot has already happened. A lot more lies ahead. A VUCA world beckons.

Till next week.