The opinions expressed here are those of the author, a columnist for Reuters.

By Mike Dolan

LONDON, July 8 (Reuters) - Ukraine hits Russia where it hurts, long/short hedge funds prove fundamentals still matter, and Europe continues to underestimate its own global heft.

In my midweek piece, I'll highlight a few key stories that caught my eye this week that might have gotten lost in the flood of daily market news.

THE PUMP DON'T WORK

The late U.S. Senator John McCain observed in 2014, "Russia is a gas station masquerading as a country." If that's true, then reports of the country's own people now running short of fuel appear both bizarre and potentially very meaningful in its now 4.5-year-long war on Ukraine.

Attacks on Russia's energy infrastructure are leading to rationing, rising costs and growing public discontent, with the country now having to import fuel from India and Kazakhstan.

Unsurprisingly, Russians are more pessimistic about the state of their economy than at any time in the past 20 years, ​pollster Gallup said in a survey published last month.

The fuel shortage hasn't yet blunted the Russian military threat, however. Harsh retaliation for the serial Ukrainian strikes on its energy hubs initially came last Thursday in one of the biggest bombardments of Kyiv of the war so far, followed by another attack on Ukraine's capital on Monday.

But will Russians' discontent over fuel shortages help to hasten an end to the war or will it intensify it, increasing the risk of more casualties and more damage to the region's energy infrastructure?

The conflict may now often be overlooked by investors because of its protracted length, but it will have to end at some point — and the duration still has huge ramifications for European security and defence spending, the fate of the NATO alliance and — of course — global energy supplies.

WHEAT AND CHAFF

Maybe the market rally is not all about momentum and "fear of missing out" (FOMO) after all. Goldman Sachs noted on Thursday that hedge funds known for fundamental long-short strategies — essentially funds using company-by-company analysis to assess financial health — just posted their best quarterly return ever since the bank began tracking them, clocking a gain of some 18%.

That may not be that surprising if you consider that some chip stocks doubled during the quarter with barely a flicker in their forward earnings valuations as revenue projections matched the share price surge. But not everything moved up and to the right, with some chip and megacap stocks ending the quarter in the red. Most notably, the "Magnificent Seven" grouping ended the second quarter in negative territory.

And short sellers continue to prowl. Famed short seller Michael Burry, for one, seems to have doubled down on bets against big AI stocks and chipmakers too, with others circling SpaceX SPCX.O after its blockbuster IPO last month.

In a quarter that saw massive shifts in energy prices, Fed rate expectations and geopolitical conflict, the shops focused on fundamentals did a good job of separating the wheat from the chaff. Let's see if they can keep that going.

PUNCHING BELOW ITS WEIGHT

This week's NATO summit will highlight Europe's precarious position amid the rise of so-called "geoeconomics" – the intersection of economic, industrial, military and financial policies. In this world of fraying alliances, rearmament pressures and high relative energy costs, Europe is being squeezed both from the east and west amid the intensifying rivalry between President Donald Trump's America and China.

Europe faces tariff-related protectionism from America and severe import competition from China, while it also contends with a massive deficit in tech innovation and growing security risks. The NATO summit will spotlight just what Europe is doing to defend itself and how credible that might be if Washington were to retreat from the transatlantic alliance.

In a piece for the IMF's Finance and Development magazine, Beatrice Weder Di Mauro, president of the Centre for Economic Policy Research, said part of Europe's problem is that it sees itself as a "middle power" instead of fully acknowledging and mobilising its potential economic and military heft.

"Values without power are fragile," she writes, adding that "many of the world's 200 nations do not align fully with either of the two competing superpowers and thus need a powerful 'third pole' capable of projecting strength while serving as a moderating and stabilizing force."

She concludes with a strong message: "Europe must recognize that it is large, capable, and consequential — and act accordingly."

(The opinions expressed here are those of Mike Dolan, a columnist for Reuters.)

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