European stocks hit new highs, German stocks are "unstoppable," what does a ceasefire between Russia and Ukraine mean?

Driven by optimistic expectations that the Russia-Ukraine conflict may soon come to an end, European stocks hit a record high this Thursday, with the German stock market leading the charge.

According to a previous report by CCTV News, on February 12, U.S. Eastern Time, U.S. President Trump spoke on the phone with Russian President Putin and Ukrainian President Zelensky in succession. Both sides hope to end the Russia-Ukraine conflict and visit each other. After the call, Trump stated that Ukraine joining NATO is unrealistic.

The European Stoxx 600 index rose by 1%, with a cumulative increase of 9% in the first quarter of this year. The Stoxx Mid-Cap index increased by 1.1%, reaching its highest level since January 2022. Additionally, the German DAX index rose by 2%, the French CAC index by 1.5%, and the Italian FTSE MIB index by 1%. The Russian stock market was particularly strong, with the Russian MOEX index rising over 5%.

However, compared to the "booming" capital markets, Goldman Sachs believes that the cooling of inflation and the extent of economic growth after a ceasefire may be limited.

Regarding the potential economic and financial impacts after a ceasefire in the Russia-Ukraine conflict, Goldman Sachs economists have outlined two scenarios:

1. Achieving a limited ceasefire: The Russia-Ukraine conflict may not immediately come to a complete end, but rather be alleviated through a limited ceasefire agreement, with a slow resolution process.

2. Achieving a comprehensive peace agreement: The agreement reached by both sides will cover all contentious issues and have a high degree of enforceability and credibility.

Goldman Sachs believes that under the limited ceasefire scenario, the Eurozone's GDP may increase by 0.2%, and if a comprehensive ceasefire agreement can be reached, the Eurozone's GDP growth could reach 0.5%. Goldman Sachs argues that unless a comprehensive peace agreement is achieved, the ceasefire's contribution to European growth will be limited. Based on the situation in various countries, Goldman Sachs estimates that under the limited scenario, Germany's GDP growth will be about 0.1%, while France, Italy, and Spain will be around 0.2%.

The following are the main conclusions from Goldman Sachs experts:

The most significant impact may be reflected in the natural gas market

Goldman Sachs commodity strategists analyzed two possible scenarios for natural gas flows and estimated their impact on inflation and Eurozone GDP: one scenario involves a 15% reduction in natural gas flows, while the other involves a 50% increase in flow. Goldman Sachs estimates that under these two scenarios, inflation would decrease by 0.15 and 0.5 percentage points, respectively, and the Eurozone GDP could increase by 0.1% and 0.34% due to increased consumer spending and production.

Consumer confidence may improve, but the extent is limited

Goldman Sachs believes that if both Russia and Ukraine reach a ceasefire agreement, consumer confidence is expected to receive some boost, but the extent may be small. Considering that high inflation in 2022 was the main reason for the significant blow to consumer confidence, Goldman Sachs expects that the confidence-driven real GDP growth will only be between 0.03% and 0.09% under the current high inflation conditions

The Reconstruction of Ukraine's Infrastructure May Also Support Growth in Europe

Goldman Sachs stated that the cost of rebuilding Ukraine could lead to a slight increase in the Eurozone's GDP by 0.02% to 0.08%.

A Ceasefire is Expected to Alleviate the Financial Environment in Europe

Goldman Sachs noted that the Russia-Ukraine conflict has led to significant declines in European stock markets and long-term bond yields over the past three years. Therefore, after a ceasefire, some financial tensions are expected to ease. The Eurozone's GDP may increase by 0.06% to 0.13% as a result.

Goldman Sachs also mentioned that considering the limited potential for inflation to cool and economic growth to expand after a ceasefire, the European Central Bank's monetary policy is unlikely to be significantly affected. However, the Eurozone Council (the decision-making body of the European Central Bank) may place greater emphasis on the optimistic trend in economic growth, thereby maintaining a degree of stability in its policies and avoiding excessive tightening