Need to Know: Why Russia’s invasion of Ukraine may be the preamble to a second Cold War, leading to more volatility and supply shocks

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To say this has been an eventful week has been an understatement. Through Friday morning, the 16% weekly surge in the S&P GSCI index
SPGSCI,
+0.93%

tracking commodities is the highest in at least 50 years. The cause, of course, is the invasion of Ukraine by commodities supplier Russia, and the package of Western sanctions triggered in response.

A commentary by Craig Fuller, chief executive of the trade publication FreightWaves, has helped put it into perspective. “If the Russia-Ukraine conflict’s international ramifications keep spreading, we face a real possibility of a bifurcating global economy, in which geopolitical alliances, energy and food flows, currency systems, and trade lanes could split,” warned Fuller. He said the world of the first Cold War is being recreated.

“Entire supply chains will be rewritten, with new sources and partners — all in the interest of corporate and national security. This will create massive volatility and unpredictability,” says Fuller. Consumers will face higher prices, but also reward brands that consistently and predictably provide availability.

“ ‘The bid-offer spread is as far apart as Putin and any leader he talks to at his big table.’ ”

— Michael Every, Rabobank

“The Ukraine crisis is perhaps the end of the preamble to a long history of geopolitical, economic and military conflict between the East and West in the second Cold War. Now the plot is thickening. State actors such as Russia and China are choosing regional hegemony over global integration — we will see this play out further in the Baltics and the South China Sea, not to mention the Middle East and the greater Pacific,” said Fuller.

Hat tip to Michael Every, the global strategist at Rabobank who spotted this analysis. Every says a possible Iran nuclear deal could lead to still more volatility, rather than quell it, either from the Saudis stopping investment in the U.S. or the Israelis taking matters into their own hands.

Liquidity is evaporating, leading to “trades of decent size” seeing outsize price. “In short, the bid-offer spread is as far apart as [Vladimir] Putin and any leader he talks to at his big table; or Russia and the rest of the world. Expect those spreads to get wider and wider until something breaks. Which won’t be helped by the Fed, which [Jerome] Powell says will plow on while everything not under its remit crumbles,” said Every.

Granted, U.S. stocks have held up well this week, with just a 1% drop for futures on the S&P 500. Even in the 1970s when global architecture collapsed, the U.S. managed to emerge stronger and more central. Rabobank’s Every says the fundamentals say that could happen again, but the journey ahead could be shocking.

The buzz

A fire at Europe’s biggest nuclear plant after Russian shelling was extinguished, with no change in radiation levels, as Russian forces seized control. Though negotiators agreed on humanitarian corridors, the Russian invasion of Ukraine continued. Standard & Poor’s lowered its credit rating on Russia to CCC- from BB+ with a negative outlook.

The Labor Department is seen reporting a 444,000 rise in nonfarm payrolls, and a slight reduction in the unemployment rate to 3.9%.

Gap
GPS,
-2.20%

shares rallied 7% on a smaller-than-forecast loss and better outlook, continuing a string of good results from the retail sector.

Sony
SONY,
-1.48%

and Honda
HMC,
-2.63%

said they would team up to develop and sell electric vehicles.

The market

U.S. stock futures
ES00,
-0.83%

NQ00,
-0.76%

slumped, and the euro
EURUSD,
-0.85%

fell below $1.10 for the first time since May 2020.

The Stoxx Europe 600
SXXP,
-2.75%

dropped nearly 3%.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

Ticker

Security name

TSLA,
-4.61%

Tesla

AMC,
-2.54%

AMC Entertainment

GME,
-2.92%

GameStop

NIO,
-8.68%

Nio

AAPL,
-0.20%

Apple

MULN,
-8.95%

Mullen Automotive

BABA,
-3.20%

Alibaba

NVDA,
-2.09%

Nvidia

FB,
-2.47%

Meta Platforms

AMD,
-5.33%

Advanced Micro Devices

Random reads

The Ukraine conflict has at least produced this viral interview on Indian television.

Newark, New Jersey’s council voted to suspend the licenses of local Lukoil gas stations and convenience stores.

It turns out lions aren’t very good at climbing trees.

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