What Investors Are Watching as Trump Meets Ukraine, EU Leaders

President Donald Trump met with Ukrainian President Volodymyr Zelensky in the White House on Monday. (Anna Moneymaker / Getty Images)

While oil prices would likely be the first to respond to any significant news about the Ukraine-Russia war, Monday’s White House meeting with Ukrainian President Volodymyr Zelensky and European leaders could have broader economic and market ripples.

President Donald Trump’s Friday meeting with Russian leader Vladimir Putin in Alaska to find a path to a cease-fire in Ukraine ended abruptly with no press conference. Trump indicated the two sides should move toward ending the war, rather than pursuing a cease-fire, while Putin called on Ukraine to cede territory on its eastern side to freeze the conflict.

That leaves the White House meeting as the next potential turning point.

“Expectations are low for a deal and the key question will be to gauge U.S.’ willingness to impose sanctions on Russia to speed up talks versus pressure on Ukraine to cede territory to Russia to end the war,” said Juhi Dhawan, U.S. macro strategist for Wellington Management.

Still, markets could react. Areas of interest include not only oil prices, but also defense stocks and European markets. The stakes are high for India as well because heavy penalties against New Delhi for its purchases of Russian oil are scheduled to take effect soon.

Here’s what strategists are keeping tabs on:

While the odds are low, the Alaska summit raised the odds that a framework could emerge for discussions to ultimately lift some of the sanctions on Russia, says Christopher Smart, managing partner of the Arbroath Group, a geopolitical consultancy. That could lower oil prices and help global stocks.

Smart, who previously was a senior economic policy advisor in the Obama administration, also noted Europe’s strong interest in resolving the war, as evidenced by the fact that seven leaders were expected at Monday’s meeting. If the discussions result in Europe recommitting to Ukraine with increased capabilities, that could lift European and U.S. defense stocks, and possibly boost European economic growth as a result of increased spending.

If the U.S. pushes Ukraine and the Europeans to swallow an unacceptable deal, Europe could respond by reconsidering its increased spending commitments to NATO, potentially reallocating that to help Ukraine. Such a military and diplomatic split would likely rattle markets, at least initially, Smart says.

Alternatively, if the meeting nudges Trump to ramp up pressure on Russia, the question is how far the U.S. may go on that front. The issue is whether it would tighten up sanctions already in place and follow through on threats such as to impose 25% tariffs on India for its oil purchases, effective Aug. 27.

China and India combined account for 85% of Russia’s oil exports but the U.S. has only penalized India so far. For now, analysts don’t expect the U.S. to take action against China because the focus continues to be on trying to reach a broader trade deal in the fall. The fact that China is in a stronger position to retaliate against the U.S. economy limits Washington’s ability to act against Beijing.

Arthur Kroeber, head of research at Gavekal, is skeptical about any swift resolution of the war. While he said three developments could bring that about—a collapse in Russia’s economy, the Ukrainian people no longer supporting a continued fight, and the U.S. abandoning Kyiv—none of those look imminent.

While Russia’s economy is showing strains, it isn’t near collapse, Kroeber said. Even with the penalties on India, Kroeber expects Russia to continue selling oil because the price caps related to the existing sanctions on its oil sales make its crude too cheap to turn down. He argued that Russia should be able to maintain financing of the war for at least another year or two.

Write to Reshma Kapadia at reshma.kapadia@barrons.com