An outline of a peace deal between Russia and Ukraine has emerged, with sources briefed on Moscow's thinking stating that Russian President Vladimir Putin proposed to Donald Trump at their Alaska summit that Russia would relinquish small pockets of occupied Ukraine in exchange for Kyiv ceding swathes of its eastern land that Moscow has been unable to capture.

The account emerged the day after Trump and Putin met at an airforce base in Alaska, the first encounter between a US president and the Kremlin chief since before the start of the Ukraine conflict. Ukrainian President Volodymyr Zelenskyy is due to travel to Washington to discuss a possible settlement of the full-scale war, which Putin launched in February 2022, with Trump. Although the summit failed to secure a ceasefire, Trump said in an interview that he and Putin had discussed land transfers and security guarantees for Ukraine, and had "largely agreed". "I think we're pretty close to a deal," he said, adding: "Ukraine has to agree to it. Maybe they'll say 'no'."

Specifically, the proposed Russian deal would involve Kyiv fully withdrawing from the eastern Donetsk and Luhansk regions in return for a Russian pledge to freeze the front lines in the southern regions of Kherson and Zaporizhzhia. However, Ukraine has already rejected any retreat from Ukrainian land such as the Donetsk region. Russia would be prepared to return comparatively small tracts of Ukrainian land it has occupied in the northern Sumy and northeastern Kharkiv regions. Furthermore, Putin demands Ukraine be permanently barred from joining NATO, though he seems open to providing some kind of security guarantees. Putin would also seek formal recognition of Russian sovereignty over Crimea, official status for the Russian language, and freedom for the Russian Orthodox Church in Ukraine.

Market Signals

Sector Impacts and Opportunities: An end to the war would likely lead to a disinflationary impact on commodity prices, potentially lowering oil prices. Sectors like steel, cement, engineering, and textiles, as well as companies involved in reconstruction and infrastructure, could benefit. Investments that have gained during the conflict, such as gold, might see a downturn.
Price Movements and Volatility: Brent crude prices have fallen to a two-month low of $65.63/bbl, which could alleviate inflationary concerns. The market remains sensitive to supply shocks.
Competitor Positioning Changes: Companies serving the European market might benefit from increased demand, while those reliant on current conflict-driven demand may need to re-evaluate their market strategies.

Winners & Losers: Steel, cement, engineering, textile, and construction companies are expected to benefit from reconstruction opportunities. The travel industry could gain from lower travel costs and increased disposable income. Gold prices may decline. Companies heavily reliant on current conflict-driven demand could be impacted. Supply chains could stabilize, but a re-evaluation of supplier relationships might be necessary.

Action Timeline

Immediate (24-48h): Monitor the Trump-Zelenskyy meeting; any signs of ceasefire or de-escalation.
Short-term (1-2 weeks): Assess market reactions to any preliminary agreement; re-align market strategies based on geopolitical and economic shifts.
Long-term: Observe Ukraine's reconstruction; structural changes in energy and agriculture markets; continued defense spending.

Risk Assessment

Regulatory Risks: Potential changes to sanctions, particularly concerning Russian energy exports.
Market Volatility: Market reactions to news are likely to be volatile, with many investors adopting a "wait-and-see" approach.
Geopolitical Tensions: Uncertainty over the implementation of any deal, especially given Ukraine's rejection of territorial concessions.

Key Indicators

What this signals for the market/industry: An end to the conflict could reduce inflationary pressures, particularly in Europe.
Leading indicators and data points: Continued decline in oil and gas prices; outcomes of the Trump-Zelenskyy meeting; monetary policy decisions by the ECB and the Fed.

Regional Perspective: Europe could see reduced inflationary pressures and a recovery, but countries dependent on Russian energy or located near the conflict zone might experience varied impacts. European companies could benefit from increased demand. The Ukrainian situation may require supply chain re-evaluation.

What happens next: The meeting between Trump and Zelenskyy is the next key event.
Time-sensitive opportunities or risks: Any progress towards peace could improve risk sentiment, but the market may approach any preliminary agreement with caution.

Leading indicators to watch: Ceasefire developments; commodity price movements; monetary policy decisions from the ECB and the Fed.
Expected next developments: Outcomes of the Trump-Zelenskyy meeting; Ukraine's response to Russian proposals.
Key decision points ahead: Ukraine's agreement to any settlement; US and European decisions on lifting sanctions.

Analysis: This offer from Putin is seen as an attempt to leverage the relationship with Trump to advance Russia's peace agenda, which includes significant territorial concessions from Ukraine. Ukraine's rejection of these terms, as previously stated, indicates that the path to peace remains long and difficult. However, any move towards negotiation could significantly impact global markets, particularly energy and commodity prices.