Russia’s invasion of Ukraine is a turning point for European politics, as has been widely recognised in the short space of a few days. What is less widely recognised is that we’re also at turning point for markets.

Europe is in the early stages of a big adverse shock to its economy, which will upend the debate over monetary policy. Think back to just a week ago when there was still collective hand-wringing about elevated inflation. That is now old news. The interesting thing — and the opportunity — is that markets have not yet recognised or priced this.

Take the case of elevated inflation. In a recent analysis by the Institute of International Finance, we warned about the breadth of the inflation rise in Europe, which was being led by genuine overheating in Germany. But Germany is now also on the front line in confronting Russia and one of the most exposed economies to what surely will be deep recession to the east. That changes the inflation debate.