Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

IT’S back to the future for investors this week. Soaring commodities and plunging shares are an unpleasant echo of the 1970s.

Twelve days into Russia’s invasion of Ukraine, investors are starting to count the cost of the West’s economic war on the Putin administration.

The spiralling cost of oil

Oil is an economic weapon. Fifty years ago, the Arab oil embargo blocked shipments to countries that had supported Israel in the Yom Kippur War. This was the first of two oil crises in the 1970s. The second followed the Iranian revolution in 1979. The oil price trebled and then doubled again in the 1970s, so this week’s spike to $140 a barrel, on the back of a rumoured ban on oil imports from Russia, may be just the start of it. Oil was last this high in 2008 when, again, Russia sent troops into a former Soviet republic - Georgia. No-one knows how much higher oil can go. There is speculation about $200 a barrel. Much will depend on whether Saudi Arabia and the US shale fields can fill the gap. Here in the UK, the pound is weaker than in 2008, so the impact on petrol prices is greater. The cost on the forecourts is above £1.50 a litre and rising.

Other commodities spiking higher

The other key commodity in this crisis is natural gas. That’s because Russia accounts for such a large proportion of energy imports to key European markets like Germany and Italy. Natural gas futures rose 70% on Monday to as much as €335 per megawatt hour. A year ago, the equivalent price was €16. Ukraine and Russia are also key exporters of agricultural commodities and metals. Wheat futures rose 7% this week to a new high. Palladium, a key component in catalytic converters, rose more than 5% to a new record. Gold, a safe haven in inflationary times, is above $2,000 and eyeing its all-time high of $2,070.

European stock markets in the eye of the storm

Perhaps unsurprisingly, the biggest impact in stock market terms has been felt in Europe. Last week’s 7% fall in the Stoxx 600 index was its worst performance since the start of the Covid pandemic. This week European shares fell another 3.3%. Germany’s DAX was 4% lower. Spain and Italy both fell a little bit more than that. In currencies, the dollar is in favour, with the Euro falling to $1.08. Russia’s rouble, which traded at 40 to the dollar before the annexation of Crimea in 2014, fell to nearly 140 to the dollar this week.

What to watch this week

Central banks are in focus. The ECB is battling with slowing growth and rising inflation. It is likely to leave its key deposit facility interest rate at minus 0.5% on Thursday. That same day, expect US inflation to rise close to 8% for February. For the Fed’s response, we must wait until next week.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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