Written by: Susannah Streeter | Hargreaves Lansdown
Anxiety is again rippling through global financial markets with the fear of stagflation taking hold, as the Ukraine conflict ratchets up inflationary pressures and threatens to derail global growth. The price of oil spiked at $110 a barrel early on Wednesday the highest level it’s been in almost 8 years, piling pressure on companies and consumers. The upward march has been fuelled by warnings from the International Energy Agency that global energy security is now under threat and the release of emergency supplies by members including the US and Japan has done little to calm prices. President Biden is under increasing pressure from US lawmakers to suspend crude imports from Russia. Hitting Russia even harder with boycotts will cause sharp ricochet of financial pain but it is a price corporations and politicians believe needs to be paid to try and bring an end to Moscow’s aggression. The worry is that it will do little to break Russia’s immediate resolve, which could lead to a long drawn out economic conflict. European natural gas exports surged by 30% in a day, amid concerns that Russia will stop supplies to the region in a retaliatory measure and worries about pipelines being damaged in the conflict. Germany, highly reliant on the taps being kept on, says it is prepared if Russia makes that move, and will fall back on coal plants while intensifying the shift to renewables.
Resolve in the corporate world is also strengthening with Apple the latest giant to stop sales in Russia, following calls by Ukraine for tech companies to pull products and services from the country. Centrica has clearly been feeling the heat following moves by BP and Shell to cut ties with Moscow and has also announced the comapy’s exit from its gas supply agreement with Russia’s Gazprom. Global shipping companies Maersk and MSC have joined the boycott, suspending container moves to and from Russia. It means the country is now cut off from a huge slice of the globe’s shipping capacity which is set to drive commodity prices even higher.
Food producers will find it increasingly difficult not to pass higher prices onto customers given the surging costs, with wheat prices jumping to levels not seen in 14 years. The most actively traded contract in Chicago hit $10.23 a bushel, the highest level since March 2008.
But there are now worries that the conflict could inflame the global computer chip crisis, which had shown signs of easing. High tech exports of components like chips are among those on the sanctions lists and Japan has said curbs will be imposed on semi-conductors. Ukraine is home to half of the world's neon gas, which is critical for manufacturing semiconductor chips, and the conflict risks limiting supplies. Palladium is also crucial for chip manufacturing and it has been pushed to multi-month highs on concerns that Western sanctions will hit supply from Russia which currently supplies around 35% of the rare metal.
Amid a concerning outlook, the stampede to safety has continued. Investors have been seeking out the US dollar and government bonds as safer havens. Despite soaring inflation, there are now expectations that the US Federal Reserve might not be as aggressive in raising interest rates this year with the spectre of stagflation looming, and expectations of a bigger hike at the next meeting are fading away.