Commodity chaos sends stocks falling further

The threat of an import ban on Russian oil and gas has sent commodity prices soaring. Brent crude, which sets the benchmark value of around two-thirds of the world's oil, was trading at $139 (€128) a barrel shortly after trading opened on Monday, the highest level since July 2008. The wholesale price of gas in Europe also climbed 60% to €350 ($381), far above the record high set on Friday. Prior to the Russian invasion of Ukraine, the price was below €80.

It's not just oil and gas prices that are spiking. The price of palladium has also jumped to a record high of $3,440 per troy ounce. Palladium is needed to make catalytic converters, a device fitted to car exhaust systems to remove harmful emissions. Russia accounts for 38% of global palladium production.

Nickel, too, has risen by more than 30% at times, to almost $38,000 per ton, the highest level since 2007. Aluminum, another key resource for the automotive industry, for the first time rose to more than $4,000 per ton. Copper climbed to a record high of about $10,850 per ton.

After the "end to an extraordinary week," the week just beginning will probably also be exceptional, commodity analysts at Commerzbank told DW.

Stock price fall continues unchecked

The rapid increase in the price of commodities and concerns about further military escalations are causing prices to plummet on the stock market. Following heavy losses on the Asian markets, the stock exchanges in Europe also opened with significant losses. The German DAX index plunged 5% to 12,438 points at the start of trading, easily breaking the significant 13,000-point barrier before recovering slightly in the course of trading.

It was similar for the eurozone's STOXX index, which slumped 3.7% in the first minutes of trading, followed by modest gains. Investors are fleeing to gold. The price of the troy ounce has risen to more than $2,000 for the first time since the summer of 2020. A weak euro means gold is already more expensive than ever for euro holders.

"We are at the beginning of a new world economic order," said Robert Halver, capital market strategist at Baader Bank, of the violent reactions on the financial markets. Citizens have suffered dramatic losses of purchasing power due to the price explosion for oil and gas, he told DW. Companies will probably not be able to pass on their higher costs to consumers.

Growth will be severely hampered in the coming months by the shortage of raw materials, according to Martin Lück, chief investment strategist for German-speaking regions at BlackRock, the world's largest asset manager. Certain sectors such as the automotive industry are suffering particularly badly, he said. This means that overall the German and European economy will produce significantly less.

Along with rising energy costs, the war in Ukraine is also likely to hit consumer spending in a serious way, Lück believes. Germany is heavily dependent on energy imports and global trade. "In the short term, economic activity will be significantly subdued," he told DW.

Farewell to the old economic order

Rising commodity prices are likely to accelerate inflation significantly, perhaps reaching as much as 5% in the eurozone for the year as a whole, believes Christian Kahler, equity market strategist at DZ Bank. This creates a dilemma for the European Central Bank, which is tasked with maintaining price stability. The bank's governing board members will gather on Thursday for their monthly policy meeting. Will they choose to pull back on the easy money policy that has defined the pandemic era?

Such a move could fight inflation, but at the risk of stalling a shaky recovery and plunging the economy into recession. "The situation is extremely precarious," said Lück. European stock markets have already fallen 20% since the beginning of the year, he said. As long as there is no bottom in sight, prices will probably continue to plummet.

"This is a very different situation from the one that prevailed two years ago in the first weeks of the coronavirus pandemic," explained the BlackRock chief strategist.

Back then, it was clear that eventually the pandemic would end and that until it did, governments would use massive financial support to prevent the economy from crashing.

Now the state is facing an even greater challenge: to cushion the impact of high energy prices on consumers. The state has influence over more than half of the current price of gasoline, for example, through energy taxes and value added tax (VAT). At the same time, it has to shoulder the cost of the green energy transition and the higher cost of defense.

"We have to say goodbye to the old economic world," said Baader Bank strategist Halver, at least in Europe. The US is better positioned to weather the crisis, he said, because the country is less dependent on Russian energy. The Europeans, on the other hand, will now have to get creative.

Adapted from the original German by Kristie Pladson

Edited by: Uwe Hessler