Jerome Powell, Federal Reserve Chair, confirmed the central bank’s plan to raise interest rates this month as the U.S. economy remains strong despite the war in Ukraine. Stocks climbed on Wednesday to erase losses from the previous two sessions. Commodities reached multi-year record high levels as investors weigh the effect on supply that economic sanctions on Russia could cause.
Energy markets are running wild, with oil trading over $110 a barrel. NY Harbor ULSD heating oil futures gained over 25% in three days and London Natural Gas rose over 75% from Friday’s levels.
UK Nat Gas (FN) 6-months daily chart
Agricultural commodities have also seen strong moves as supply concerns rise along with fears of doing business with Russia. Ukraine and Russia account for 25% of global wheat production alone. Ukraine’s exports are stopped and fears that the continued conflict will cause a further supply disruption that may continue into next season. Wheat rose Wednesday by its exchange limit, which amounts to just over 7%.
Wheat (W) 6-months daily chart
Metals like Aluminum, Nickel, and Zinc also rose sharply. These markets have experienced tight supply as economies recovered from the pandemic and industries reactivated. Russia is a major supplier of metals like aluminum.
LME Aluminum (LMAHDS03) 6-months daily chart
Russia is also a major producer of fertilizers. As sanctions already imposed continue to threaten Russia’s exports, farmers across the world could face higher costs. Higher costs have the potential to translate into higher food prices at a time when food prices are already at multiyear high levels.
Only time will tell the impact of the Russia-Ukraine war. Nevertheless, having a well-defined investment plan and broad diversification across asset classes will aid in navigating these volatile times.