What’s moving markets

March saw continued broad based rises in commodity prices. Brent Crude reached $128 per barrel while UK Gas prices broke through £3 a therm, after being 48p this time last year. Dramatically, the London Metal Exchange (LME) suspended trading in Nickel as the metal doubled in price over two days, trading above $100,000 per tonne, 5 times the highs of a few months ago. Elsewhere wheat prices have more than doubled in a year, breaching $12 per bushel.

Global demand for goods and services has risen as Covid restrictions have eased, but supply chains damaged during lockdown are not meeting the demand. This drove commodity tightness during 2021, but Russia’s invasion of Ukraine and subsequent embargos have supercharged these imbalances. Russia is a key trading partner for a whole range of commodities. It is the second largest oil exporter globally and combined with Ukraine also supplies 30% of wheat exports worldwide.

Economic data continues to point to GDP growth and prosperity. Earlier this month the US Bureau of Labour Statistics recorded over 11 million job openings, while PMIs across Europe and the UK confirmed strong broad-based expansion. Wage growth was also high; 4.8% in the UK and 5.8% in the US. Supply constraints coupled with demand growth and wage pressures elevated inflation to its highest levels for 40 years. Demand pull inflation was strongest within the US, helping overall inflation reach 7.9%. While energy was a key contributor, the inflation excluding energy and food was still an elevated 6.4%.

March also saw the Fed Funds rate increased from <0.25% to <0.5%, the first rise since action taken in response to Covid 2 years ago. This time last year central banks classified inflation as ‘transitory’, but that rhetoric has changed.