Russia’s military action in Ukraine has had a significant impact on global markets. Commodity prices have risen, bond yields are moving up and equity markets have seen a significant decline.
The Bloomberg Commodity Index touched its highest level in over seven years (see chart 1). Multiple commodities saw a spike in their prices over fears of transport and supply disruptions. The region is a key exporter of oil and gas, besides agricultural commodities and metals.
The most visible impact was on crude oil prices, which crossed over $105 per barrel before settling lower. Natural gas prices also went up. Russia is a key supplier of gas to Europe (see chart 2). Metals like aluminium also surged (see chart 3). Russian company Rusal is reportedly the largest producer of the metal outside China. Other commodities affected include India’s sunflower oil imports, of which Russia and Ukraine are major sources. Reports indicate India could gain as a wheat and cereal exporter.
Financial markets, too, have felt ripples of the event. Bond yields were higher on Thursday (February 24) than at the end of the previous week after Russia’s Ukraine move (see chart 4). Global bond yields were, in any case, rising on expectations that central banks would increase interest rates as economies recover from the pandemic.Higher bond yields make it more expensive to borrow money from financial markets. The rupee’s exchange rate against the dollar slipped below 75 amid the volatility.
Equity markets in India fared poorly compared to its peers. Indian markets were down 3.4 per cent for the week as of Friday (February 25). While European powers Germany (-5.5 per cent) and Russia (-33.2 per cent) did worse, China, US and Brazil did better than India (see chart 5). The rise in global risk aversion did see greater demand for gold. Prices reached their highest in over a year (see chart 6).
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