Putin Sets Commodities Up for Biggest Weekly Gain Since 1960

(Bloomberg) -- Commodities are on course for their most stunning weekly surge in records that go back to when Nikita Khrushchev was in the Kremlin.

Bloomberg's gauge of raw materials is closing in on the biggest weekly gain since at least 1960 as banks, importers and shippers steer clear of Russian exports following its invasion of Ukraine. Brent crude soared to near $120 a barrel on Thursday before pairing gains, while aluminum hit a fresh record, zinc topped $4,000 and wheat rallied to the highest since 2008.

Russia's growing isolation is choking a major global source of energy, metals and crops, sparking fears of prolonged shortages and sharper global inflation. Traders are re-assessing their ties with the nation after sweeping international sanctions were unleashed and, while raw materials have so far escaped direct penalties, caution reigns as Moscow rapidly becomes a commercial pariah.

“We've never seen such steep and sudden commodity price spikes across so many assets,” said Henning Gloystein, an analyst at Eurasia Group. “Until there's significant de-escalation, the record or elevated prices due to sanctions and disrupted supply chains will continue for many commodities.”

The Bloomberg Commodity Spot index, which only updates at the end of each global session, was 8.6% higher this week through Wednesday's close. It's probably already eclipsed the 9.7% jump in September 1974 -- at the tail-end of that era's oil crisis -- and will set a fresh record barring a dramatic reversal on Friday.

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Russia's attack will shake up international relations and reshape the economies of Western Europe, Fed Chair Jerome Powell told lawmakers on Wednesday. A veteran agricultural economist, Scott Irwin at the University of Illinois, said he expected “the biggest shock to global grain markets” in his lifetime.

The fallout from the war in Ukraine represents a dangerous new phase for the global economy, and complicates efforts by central banks to tame accelerating inflation. The decision by OPEC+ to leave its schedule of production increases unchanged adds to those risks as oil's spike ripples through other markets.

“Commodities have typically performed well late in the business cycle -- and during periods of global turmoil -- offering a potential hedge against inflation and disruption,” Pacific Investment Management Co. portfolio managers Greg Sharenow and Andrew DeWitt wrote in a blog post.