Three key questions: war duration (too long), damage (yes), and whether outcome is inflationary or demand destructive. Market positioned for good outcome, hoping conflict resolves quickly.

If inflationary ? rate hikes, bad for most assets. If demand destructive ? rate cuts, fixed income benefits. Could see stagflation. Central banks will try to buy time; unlikely to act in April given uncertainty.

Possible to have both sequentially or simultaneously (stagflation). Hard to know which macro scenario we're in early on.

ECB infamously hiked then cut in 2011 after realizing policy mistake. 2022 experience hangs over policymakers.

Market has lingering hope everything goes away tomorrow. Oil curve shows 35% backwardation—expecting speedy resolution. That's too optimistic; damage will take much longer to repair.

Even if fighting stops, oil fields, gas fields, LNG terminals, refineries damaged—can't reopen quickly. Supply chain destruction persists.

Central banks can't fix supply shocks but can alleviate pressure on other parts of the economy. Fiscal response likely if severe demand destruction.

Central banks must go against inflation if needed, then mop up later.