By Marc Jones

LONDON, (Reuters) – Investors hoped that 2022 would see the end of the COVID-19 market crash and that life would feel a bit more normal. But they were mistaken.

Russia’s invasion in Ukraine, combined with a supercharged level of global inflation, has triggered talk of new geopolitical orders and economic world order. It also set some incredible milestones.

A world stock crash of $10 trillion, followed by a rebound in the bond market to recover $9 trillion. This is the most powerful commodities rally since World War I. It also marks the highest global interest rates increase in decades.

The full picture is clear when you add in the fact that Japan, China and South Korea are the largest countries on the planet.

Robert Alster from Close Brothers Asset Management, said “It’s been one the most amazing quarters I can ever remember.” “… We all believed that Russia would invade Ukraine.

He pointed out that shocks occurred much sooner than this. The shocks of the Omicron COVID mutation didn’t cause the global economy to shut down, but investors suddenly realized the importance of raising interest rates.

Global borrowing costs are driven by the main culprit, which jumped from below 1.5% to 1.8%. This knocked 5% off MSCI’s world stock index in January.

Now, the yield stands at 2.4%. The two-year U.S. yields are experiencing their largest quarterly increase since 1981. A Fed interest rate increase of more than 200bps is expected for this year. This would mark the highest annual rise in calendar years since 1994.

While the global top stocks markets may end March higher, all are set for their worst quarter in a decade since the outbreak of coronaviruses in 2020.

These seismic shifts occurred as oil prices soared by 40%.

Add to that the 31% rise in wheat prices and the 57% increase in nickel, BofA analysts predict commodities will be at their highest level since 1915.

Moscow called it “special military operations” because Russia was subject to unprecedented Western sanctions. It also led to major investment funds around the globe talking about a new order.

Russian shares that were listed in London or New York by Russian corporations have been removed. The rouble cannot be traded freely anymore, and both the government of Russia and its corporate bonds are now expelled from major investment indexes.

Vladimir Putin retaliated saying that “unfriendly” countries like Europe where Germany receives more than half of its gas from Russia will need to pay for it in rubles.

EM ROLLERCOASTER

Emerging markets have been affected by a wider spillover, which has boosted some but hurt others.

Egypt imports the most wheat of any country. It has had to ask for assistance from the IMF and devalue 15% its currency.

The second-worst quarter for emerging market debt has been recorded, falling nearly 10% on an absolute return basis. Only the 13.3% COVID-induced drop of the first quarter 2020 is worse.

South Africa and Brazil are the commodities heavyweights. Their currencies have performed the best, increasing 17% each and 10% since the start. Australia’s dollar ranks as the most advanced among the advanced economies.

Francesco Sandrini of Amundi’s Multi-Asset strategy, stated, “This represents a tectonic shifting from a Geopolitical Point of View.”

“Nobody could have imagined that there would be an entirely new type of world energy.” He concluded. “Perhaps, we’re talking about the literal unwinding globalization.”

ALERT YIELD CURVE

A key part of the U.S. yield curve, which has always been an indicator of recessions in economic growth, was also “inverted” by this week’s dreaded (but brief) event.

This is the first such event since 2019. The wider rise in global yields has meant that the $18 trillion pile negative-yielding bond that was there a few year ago, where investors were paid for the privilege to lend, is almost over.

The’safe haven’ Japanese yen has dropped 9% against the dollar in this month. This is the largest drop by any G10 currency since 2016’s Brexit defeat.

The dollar’s third consecutive quarterly increase against major peer currencies will be offset by a slightly lower 6% quarterly drop in the yen and a smaller 2% decline by the euro. However, it remains down against emerging markets units despite anxiety due to events in Ukraine.

In the wake of the Ukraine invasion, the Russian rouble fell nearly 50%. However tight capital control and central bank intervention since then have kept it at a manageable 15%.

Morgan Stanley Min Dai (NYSE:), the veteran Head of Asia Macro Strategy at EM, is now completely baffled. He said, “What happened the last month for someone who has followed EM most of his career is beyond belief.”