War in Ukraine set to cause major economic crisis

As Russian military pressure intensifies on Ukrainian cities, economic sanctions are being stepped up to bend Vladimir Putin. News that the US, Europe and Japan are considering an embargo on Russian oil supplies has sent crude oil prices soaring. But gas, metals, gold and food prices are not immune.

The entire trade of major commodity producers (Russia and Ukraine) is affected, either because of fighting preventing the flow of goods, or because of sanctions or fears linked to these sanctions. Raw material prices are soaring and some industrial and agri-food sectors are already facing shortages, not to mention the financial repercussions for all companies that were operating in Russia or Ukraine, either directly or in partnership, or were actively trading with these countries. Europe is of course in the front line with the nuclear threat reactivated in a serious way for the first time in 60 years and the Soviet missile affair in Cuba. 

The European equity markets had already lost more than 10% last week. The week starts with the same trend. Bond markets are caught in the stagflation pincer (shock to both growth and prices) and are not moving too much (1.72% for the US 10 year, -0.08% for the German 10 year). The US jobs report showed robust job creation in February (+678k) but a surprise slowdown in wages which makes it even more uncertain what the Fed’s policy will be after an almost certain Fed funds rate hike next week. This morning’s release of rising German factory orders in January is already looking like old news: recession risks are soaring in the Eurozone. The EUR/USD exchange rate plunges below 1.09.