The outbreak of the Russian invasion in Ukraine sparked strong reactions in financial markets around the world. While stock market values were in decline, particularly in Europe, the prices of oil, industrial metals and cereal foodstuffs jumped to levels not seen for years.
Stock market shake-ups
In North America, the most representative index of the American stock market, the S&P 500, fell 2.5% at the start of the session on Thursday, during the first hours of the Russian invasion of Ukraine. He then caught up, to finish up 1.5%, at 4288 points.
In Canada, the S&P/TSX index on the Toronto Stock Exchange fell 300 points at the start of the session before rebounding, to end up slightly up 17 points, or 0.1%, at 20,761 points.
“High commodity prices have been a support element for the Canadian stock market, where the damage is limited to a decline of around 3% since the start of the year, including nearly 1.5% this week”, reported Desjardins Group economists in a special post published Thursday.
Meanwhile, Europe’s major stock exchanges suffered one of the worst sessions since March 2020 on Thursday, during the brief stock market crash at the start of the pandemic.
From Frankfurt to London via Paris and Milan, the market indices fell by nearly 4% on average.
But in Eastern Europe, the index of the Warsaw Stock Exchange fell by 10%, and that of the Moscow Stock Exchange collapsed by 35%.
In return, investors rushed to safe havens such as gold, which approached US$2,000 an ounce, its highest since the brief stock market crash at the start of the pandemic two years ago.
From the point of view of a major stock market investor such as the Caisse de depot et placement du Québec (CDPQ), which presented its annual results on Thursday, these strong tremors in the financial markets come at “a time when the economy had already negotiate significant inflationary pressures,” said Vincent Delisle, head of liquid (financial) markets at the CDPQ.
“The economic backdrop, which is already complex, may go from complex to complicated,” said Charles Emond, President and CEO of CDPQ, referring to the possibility of an acceleration of the inflation and other pressures on economic growth.
Oil over US$100 a barrel
Russia is one of the world’s leading producers of gas and oil. Its invasion of Ukraine has caused serious concern in the world oil market, which fears supply disruptions.
Consequently, the price of a barrel of oil in Europe (Brent) and the United States (WTI) jumped by more than 6%, to exceed the symbolic threshold of US$100 during the session on Thursday. This was a new high since 2014.
At the end of the day, a barrel of WTI oil was trading at around US$92, while a barrel of Brent in Europe was holding above US$100. As for natural gas, the benchmark price in Europe rebounded sharply by almost 30%.
“The soaring energy prices are a big headache for Europe, since 40% of its natural gas and 30% of its oil come from Russia”, according to an analyst from the financial firm Swissquote, quoted by l ‘France Media Agency.
Moreover, beyond the foreseeable surge in gasoline prices at the pump, the surge in oil prices to the US$100 threshold presents risks for a world economy that is still highly dependent on hydrocarbons.
“In the United States and Canada, one of the first direct effects visible to the majority of the population should be a further increase in gasoline and energy prices,” say Desjardins Group economists in a bulletin special released Thursday.
“For the next few months, if the conflict [en Ukraine] stretches, we could see a negative effect on consumption due to market volatility, additional inflationary risks and loss of consumer confidence. »
Soaring grain prices
Prices of staple foods, such as wheat, corn and soybeans, surged after Russia’s attack on Ukraine, stoking fears of an additional shock to a global economy already struggling. persistent inflation.
On the Chicago Commodity Exchange on Thursday, the price of wheat (for May delivery) rose nearly 6% to a nine-year high. The price of corn also rose 5%, while soybeans jumped 2%.
“Given that Russia and Ukraine together account for 25% of global wheat exports, and Ukraine alone accounts for 13% of corn exports, the impacts of this crisis could exacerbate inflationary pressures across the world. global economy,” commented Helima Croft, head of global commodities strategy at RBC Capital Markets, in a note to client investors.
Moreover, since 90% of Ukraine’s grain exports are transported by sea, there are fears that Russian naval operations in the Black Sea could render Ukrainian ports inoperative.
Stresses in industrial metals
Russia and Ukraine are very influential producers in the world market of so-called “strategic” industrial metals, such as aluminium, nickel, titanium and palladium. Consequently, the outbreak of the Russian invasion of Ukraine quickly caused another price spike in the main markets for these industrial metals.
For example, the Russian group Rusal is the second largest industrial aluminum producer in the world. On Thursday, the price of this metal hit a new all-time high of US$3,382 on the London Metals Market (LME).
For nickel, with companies like Nornickel Norilsk, Russia is the world’s third largest producer of this metallurgically important mineral. According to an estimate by London firm Capital Economics, nearly 10% of the global refined nickel market could be affected by disruptions or sanctions against the nickel industry in Russia.
This metal, which is trading at record highs of around US$25,000 a tonne on the LME market, is one of the most in demand on the planet in electric battery factories, and on which the automotive industry is increasingly dependent. to accelerate its electrification.
Similar situation in the case of palladium, an essential metal in the anti-pollution systems of automobiles, and of which Russia controls nearly 50% of the world market. On Thursday, palladium prices jumped just over 9% to their highest level in a year.
With Agence France-Presse, La Presse Canadienne, Associated Press, Bloomberg News, Reuters, Marketwatch/Dow Jones