Finance

Check out the companies making headlines before the bell:
Boeing (BA) – Boeing reported a loss of $7.69 per share for the fourth quarter, as it took $4.4 billion in charges relating to a variety of issues, including delivery delays for the 787 widebody jet. Analysts had expected a loss of 42 cents per share. Boeing generated positive cash flow for the quarter, the first time since the first quarter of 2019, and the stock rose 1.1% in the premarket.

AT&T (T) – AT&T gained 1% in the premarket after reporting better-than-expected fourth-quarter profit and revenue. AT&T beat estimates by 2 cents with an adjusted quarterly profit of 78 cents per share, helped by strong growth for its HBO Max unit.
Mattel (MAT) – Mattel surged 7.9% in premarket trading after the Wall Street Journal reported Mattel won back the rights to produce toys based on Walt Disney’s “Frozen” franchise from Hasbro (HAS). Hasbro fell 1.7%.
Corning (GLW) – Corning rallied 7.7% in premarket trading after reporting better-than-expected quarterly earnings and revenue. The materials science company also issued an upbeat forecast, as it sees growth in areas like optical components, life sciences and automotive.
Kimberly-Clark (KMB) – The consumer products company’s stock fell 4.4% in the premarket after issuing weaker-than-expected revenue and earnings guidance. Kimberly-Clark did, however, report better-than-expected profit and revenue for the fourth quarter.
DraftKings (DKNG) – The sports betting company’s stock jumped 6.7% in the premarket after Morgan Stanley upgraded it to “overweight” from “in-line.” The firm said the U.S. sports betting and gaming market is likely to be very large with only a few winners, and that DraftKings will be one of them.

Microsoft (MSFT) – Microsoft reported a quarterly profit of $2.48 per share, 17 cents above estimates, with revenue also beating Wall Street forecasts. Microsoft also gave an upbeat forecast for the current quarter, as cloud services revenue continued to post strong growth. Microsoft rallied 3.8% in premarket trading.
Texas Instruments (TXN) – Texas Instruments earned $2.27 per share for its latest quarter, compared with a consensus estimate of $1.94, and revenue above estimates. The chipmaker also issued an outlook that exceeded analyst forecasts amid continued strong demand for semiconductors. Shares jumped 4.3% in premarket action.
F5 (FFIV) – F5 slumped 13% in premarket trading after the cloud security company’s current quarter guidance fell below analyst forecasts. It also cut its full-year outlook, due in part to the impact of supply chain issues.
Navient (NAVI) – Navient tumbled 11.7% in the premarket after the student loan servicing company reported a quarterly loss amid higher expenses and falling revenue.
JinkoSolar (JKS) – Jinko Solar shares surged 15% in premarket trading after the solar company’s shares more than doubled during their first day of trading in Shanghai and reached a premium of about 800% over the U.S.-listed shares.

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Santander is launching its own “buy now, pay later” app called Zinia across Europe this year.
The bank touts its security and prestige as a key factor differentiating it from fintech rivals like Klarna and Afterpay.
BNPL programs are incredibly popular right now, and major lenders are looking to get in on the action.

A Santander office building in London.
Luke MacGregor | Bloomberg via Getty Images

Spanish bank Santander is launching its own “buy now, pay later” service in Europe, in a bid to fend off fintech rivals from eating its lunch.
The lender said Wednesday it will roll out Zinia, an app that lets shoppers split their purchases across monthly installments interest-free, across its markets this year, starting with the Netherlands.

The technology behind Zinia has been operational in Germany for the past year, where it has already accrued more than 2 million customers, Santander said.
Ezequiel Szafir, CEO of Santander’s Openbank online banking division, said the company aims to “become a leader in the buy now, pay later market.”
He touted “the security and trust provided by a large financial group” as a key factor differentiating Santander’s offering from other BNPL products, such as Klarna and Afterpay.
Buy now, pay later or BNPL programs have gained lots of traction over the past couple of years thanks to accelerated adoption of e-commerce in the coronavirus pandemic.
This has turbocharged the growth of the industry, and led to interest from major companies such as PayPal and Jack Dorsey’s Block, which agreed to purchase Afterpay for $29 billion last August.

Major lenders are looking to get in on the action, with Goldman Sachs agreeing to buy fintech lender GreenSky for $2.2 billion. In the U.K., Barclays has a partnership with Amazon that lets the U.S. e-commerce giant offer customers installment loans.
It could provide them a lucrative new revenue stream at a time when interest rates are at historic lows. Most BNPL firms make money by charging retailers a small fee on each transaction, in return for providing their payment method at checkout.
Still, the surge in demand for BNPL plans has caused concern for regulators, who worry the sector is making it easier for consumers to accumulate debt. In the U.K., the government plans to usher in regulation for BNPL products, while U.S. regulators are probing some of the large providers in the space.

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Baidu and Geely have invested $400 million into their electric car venture Jidu, less than a year after it was launched.
The money will fund research and development and mass production, according to Jidu.
In China, there is a trend of technology companies jumping into the electric vehicle space with the likes of Huawei and Xiaomi entering the industry.

An outline of Jidu’s concept car is pictured here. Jidu is the electric car company set up by Chinese internet giant Baidu and automaker Geely. Jidu plans to begin mass production and deliveries of its first car in 2023.

BEIJING — Chinese tech company Baidu and auto manufacturer Geely are putting more money into the electric car venture Jidu that they partnered on just about a year ago.
Both companies announced Wednesday they are putting nearly $400 million into Jidu in a Series A financing round. The capital injection comes less than a year after Jidu was launched in March 2021 with $300 million in initial capital from undisclosed investors.

Baidu has majority ownership of Jidu, with a 55% share of the company, while Geely has a 45% stake, according to records accessed through Wind Information. Both companies declined to share how much each contributed to the latest funding round.
The money will fund research and development and mass production, according to Jidu.
Global dealmaking in electric vehicles has surged in the last two years as companies rush to develop cars that analysts expect will soon replace combustion-engine ones. The Chinese government has been particularly supportive of the domestic industry’s growth, helping spur the rise of many start-ups.
Electric vehicle deals in China tripled in value to $6.61 billion in 2021 from $2.17 billion in 2020, according to Dealogic. Electric vehicle deals in the U.S. more than doubled to $924 million last year from $353 million in value in 2020, the data showed.
Baidu announced in January 2021 it planned to launch Jidu with Geely as a strategic partner and later named Xia Yiping, co-founder of bike sharing start-up Mobike, as CEO of the electric car company.

In 2010, China-based Geely acquired Swedish auto brand Volvo, which previously belonged to Ford Motor.

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FTX U.S., the American affiliate of cryptocurrency exchange FTX, has raised $400 million in its first external fundraising round.
The investment gives FTX U.S. a valuation of $8 billion, placing it among the world’s most valuable private crypto firms.
The deal shows start-up investors’ confidence in crypto hasn’t been shaken, even as token prices have fallen sharply.

Sam Bankman-Fried, co-founder and chief executive officer of FTX, in Hong Kong, China, on Tuesday, May 11, 2021.
Lam Yik | Bloomberg | Getty Images

FTX U.S., the American affiliate of cryptocurrency exchange FTX, said Wednesday it has raised $400 million in its first external fundraising round.
The investment gives FTX U.S. a valuation of $8 billion, placing it among the world’s most valuable private crypto firms. Investors in the round include Temasek, the Ontario Teachers’ Pension Plan Board and SoftBank’s Vision Fund 2.

The deal shows that start-up investors’ confidence in the nascent digital asset industry hasn’t been shaken, even as the prices of bitcoin and other tokens have fallen sharply.
Bitcoin and ether, the world’s two biggest virtual currencies, have both roughly halved in value since reaching record highs in November, while smaller tokens like solana and cardano have suffered even steeper declines.
The slump has led some to fear a more dramatic downturn known as “crypto winter” could be on its way. Brett Harrison, president of FTX U.S., said the market turbulence shows how crypto is a “volatile asset class.”
“Volatility cuts both ways,” he said. “With all of the large upturns that we’ve seen in crypto, we have to expect that there are going to be downturns as well. And we’re definitely in that period right now.”
Harrison said the phenomenon is “not specific to crypto” — stock markets have taken a tumble as well. “I think that we are going to eventually see a bounce back,” he added.

FTX was set up in Hong Kong in 2019 by 29-year-old crypto entrepreneur Sam Bankman-Fried. The wider company, recently valued by investors at $25 billion, has since moved its headquarters to the Bahamas.
Bankman-Fried established FTX U.S. as the American sister to distinguish it from his main exchange, as officials in Washington began taking a closer look at the digital currency market. Trading launched on the platform in May 2020.

In a trading update Wednesday, FTX U.S. said average daily volumes on its platform grew sevenfold in 2021, peaking at more than $800 million in November after bitcoin notched a record high of almost $69,000.
The company facilitated more than $67 billion in spot crypto trades last year. It now has around 1.2 million registered users in total.
FTX U.S. hopes the investment will help it gain an edge over rivals like Coinbase and Robinhood. Like FTX, the company is making a push into derivatives — contracts that allow investors to speculate on the performance of an asset. It acquired LedgerX, a crypto futures and options exchange, in October.
Harrison says the U.S. market for crypto derivatives pales in comparison to the international marketplace. Investors see that there’s “an enormous opportunity for us to bring much of that volume onshore,” he added.
Coinbase is looking to make similar moves beyond spot trading, agreeing a deal to buy derivatives exchange FairX earlier this month.

Regulation is coming

Still, regulators are growing concerned by the rapid rise of the crypto industry. They fear certain aspects of the market may pose the threat of contagion across financial markets, and that consumers are getting into crypto investments without knowing the risks involved.
President Joe Biden’s administration is reportedly expected to deliver an executive order calling for regulation of digital assets as early as next month.
Harrison said officials in Washington have two primary concerns with crypto — stablecoins and oversight of exchanges.
Digital currencies like tether and Circle’s USD Coin are meant to be pegged to the U.S. dollar, but it’s not that simple. Tether has admitted its reserves include short-term debt obligations and other assets as well as dollars. And, up until recently, USD Coin’s reserves had included assets other than cash and U.S. government bonds.
Meanwhile, crypto exchanges are currently regulated in the U.S. as money transfer businesses. Harrison says that’s “not a sustainable long-term future” and wants stricter oversight with rules against market manipulation, a major source of concern in the crypto market.

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Chinese companies invested more in consumer sectors and the electric vehicle supply chain worldwide, according to a report released Wednesday by Baker McKenzie and Rhodium Group.
The increase came despite an overall decline in Chinese mergers and acquisitions overseas last year, the data showed.
Latin America has become a bright spot for Chinese dealmaking, the release said.

Chinese battery giant Contemporary Amperex Technology (CATL), pictured here on April 2, 2020, broke ground on its first overseas factory in Germany in late 2019 and plans to add up to 2,000 jobs there by 2025.
Martin Schutt | picture alliance | Getty Images

BEIJING — Chinese companies invested more in consumer sectors and the electric vehicle supply chain worldwide, even as geopolitics restricted overall outbound capital flows, according to a report released Wednesday by Baker McKenzie and Rhodium Group.
Consumer products and services held the largest share of completed mergers and acquisitions last year, at $5.2 billion, up from $1.1 billion in 2020, according to the data. That still fell short of pre-pandemic levels of $10 billion in deals in 2019.

However, White House restrictions on inbound Chinese investment in tech and Beijing’s efforts to keep capital within national borders have contributed to a decline in Chinese overseas deals. The high-tech and real estate sectors have been particularly hard hit, according to a release.
Overall, completed overseas mergers and acquisitions by Chinese companies dropped to $23.7 billion in 2021, down from $29.5 billion in 2020 and marking a fourth-straight year of decline, according to Rhodium Group data.
Including other forms of foreign direct investment, Chinese deals rose to $138 billion in 2021, up from $134 billion in 2020 and $117 billion in 2019, in line with a 71% increase in mergers and acquisitions globally between 2021 and 2020, the release said.
Chinese companies’ direct investment in local subsidiaries, known as greenfield investment, in Europe and North America grew last year to $5.5 billion, from $4.7 billion in 2020 and $3.6 billion in 2019, the data showed.
The growth last year came from increased investments in Europe.

Several of the new greenfield projects the release listed for Chinese companies were of investments in the electric vehicle supply chain in Europe.
For example, Chinese battery giant Contemporary Amperex Technology (CATL) broke ground on its first overseas factory in Germany in late 2019 and plans to add up to 2,000 jobs there by 2025, with up to 1.8 billion euros ($2.03 billion) in investment.
The total value of this and other deals in the auto supply chain could exceed $14.5 billion in the next two years, according to the Baker McKenzie release.
The expansion comes as Chinese electric car start-ups like Nio look to Norway, Germany and other European markets. Major American and European automakers are also quickly shifting to electric vehicle production.
“Chinese EV companies are eager to build out their own supply chains so they can leapfrog traditional car manufacturers and jump to the cutting edge,” Mark Witzke, an analyst at Rhodium Group, said in an emailed statement.
“Using a combination of both acquisitions and greenfield investment, Chinese companies have been going worldwide in order to build out these supply chains,” Witzke said. “It will likely be a growing area of investment as shortages and competition over acquiring EV materials continues. While many of these companies are incentivized by state direction or subsidies, it is mostly private companies rather than [state-owned enterprises] driving this trend.”

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Latin America looks to China, away from the U.S.

Part of the build-up of Chinese investment in the electric vehicle supply chain is concentrated in Latin America.
Chinese mining companies have spent more than $4 billion on lithium and cobalt mining and processing assets in Latin America and Africa over the last three years, according to the Baker McKenzie release.
During the same time, Chinese state-owned enterprises have spent more than $13 billion on energy utilities and clean energy assets in Chile, Mexico, Brazil and Spain.
Devaluation in Latin American currencies relative to the U.S. dollar has made assets more attractive in the region, Alejandro Mesa, Latin American regional coordinator of the international commercial & trade practice group at Baker McKenzie, said in the release.
“Second, there are an important number of governments who have expressed interest in working with China as a business partner over more traditional partnerships with the US,” Mesa said. “Third, China has more appetite for long-term investment in the region, as it is likely that economies improve in the mid-term to long-term, thus creating a good moment for selling. In 2022, we expect China to invest heavily in telecommunications and infrastructure, apart from a continuation of more traditional investments in commodities.”
Completed Chinese mergers and acquisitions in Latin America reached $3 billion in 2021, the fourth-largest region for deals, the release said.
Foreign companies have also increased their investment into China, up by 14.9% year-on-year to 1.1 trillion yuan ($171.88 billion) in 2021, according to China’s Ministry of Commerce.
Investors from Singapore and Germany increased their investment by 29.7% and 16.4%, respectively, the ministry said Tuesday, without disclosing figures for other countries.

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Klarna is launching a physical card in the U.K. that lets users delay payments on their purchases, both in-store as well as online.
The Klarna Card will initially only include Klarna’s “Pay in 30” feature, which lets shoppers pay down their debt within 30 days.
The launch comes as the U.K. looks to bring the buy now, pay later industry under regulatory oversight.

Klarna Card.

LONDON — Swedish fintech firm Klarna is embedding its “buy now, pay later” service into a physical card in the U.K.
The company on Wednesday announced the launch of Klarna Card, a Visa card that lets users delay payments on their purchases, both in-store as well as online.

The card is already available in Sweden and Germany, where it is now used by over 800,000 people, according to Klarna. This is the first time it has arrived in a country outside the European Union. The company has been expanding aggressively in the U.K. and America.
The Klarna Card will initially only include Klarna’s “Pay in 30” feature, which lets shoppers pay down their debt within 30 days. The company said it plans to include additional payment options in the future.
Like other buy now, pay later firms, Klarna offers a popular product that splits the cost of users’ purchases over a period of monthly installments, typically interest-free. The firm makes money by charging a small fee on each transaction for retailers offering its payment method.
Its card, which comes in either black or pink, will send out push notifications to a customer’s smartphone when they make a transaction. It will also allow users to extend the due date on their payment by up to 10 days for free.
Klarna plans to roll the card out gradually, with a view to open eligibility to all customers by early 2022. It has opened a waitlist where users can sign up in the meantime.

“For online purchases where credit makes sense, buy now pay later has become the sustainable alternative with no interest and clear payment schedules,” said Alex Marsh, the head of U.K. at Klarna.
“The launch of Klarna Card in the U.K. brings those benefits to the offline world, giving consumers the control and transparency of BNPL for all of their instore purchases.”
Klarna has often criticized the credit card industry for loading consumers up with debt, often at high interest rates. The launch of its own physical card may come as a surprise for some, but the firm argues it is a better alternative to credit cards since it does not charge interest or late payment fees.
Nevertheless, the launch comes as the buy now, pay later industry faces growing scrutiny from regulators. The U.K. is readying new rules to bring the sector under the oversight of the Financial Conduct Authority, the country’s financial services watchdog.
Meanwhile, the U.S. Consumer Financial Protection Bureau has opened an investigation into popular BNPL programs like Klarna, Afterpay, Affirm and PayPal.
Klarna spokesman Daniel Greaves said Britain’s FCA is “fully aware of the product and how it works,” and that the firm received the green light from regulators before launching.

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If listing in Hong Kong becomes the only viable option, funds will likely need to rethink investment strategies given practical differences with how New York stock exchanges handle initial public offerings.
For tech companies, listing in Hong Kong could mean lower valuations than if they listed in New York, said Richard Chen, managing director with Alvarez & Marsal’s Transaction Advisory Group in Asia.
“Due to uncertainty over exiting, we slowed our pace of investment in the second half of last year,” said Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, in Chinese, according to a CNBC translation.

Traders work during the IPO for Chinese ride-hailing company Didi Global Inc on the New York Stock Exchange (NYSE) floor in New York City, U.S., June 30, 2021.
Brendan McDermid | Reuters

BEIJING — Investors may have to think twice about whether to bet on Chinese tech start-ups as new regulations are imposed on mainland companies looking to go public in the U.S.
If listing in Hong Kong becomes the only viable option, fund managers will likely need to rethink their investment strategies, as there are practical differences with how New York stock exchanges handle initial public offerings.

Since the summer, both China and the U.S. have raised the bar for Chinese companies wanting to trade in New York.
Not only investors are affected. Chinese companies looking to raise capital face greater uncertainty about their path to listing on public stock markets, and possibly lower valuations too, analysts said.
Beijing’s actions have more imminent consequences. From Feb. 15, the increasingly powerful Cyberspace Administration of China will officially require data security reviews for certain companies before they are allowed to list abroad.
Putting aside the technical complexities of why and how Chinese companies have worked with foreign institutional investors to list in the U.S., the new regulations could mean that similar IPOs in the future will likely need to go to Hong Kong.
For tech companies, that could mean lower valuations than if they listed in New York, said Richard Chen, managing director with Alvarez & Marsal’s Transaction Advisory Group in Asia.

He said a market familiar with Silicon Valley could put a higher price on a tech company’s growth potential, versus Hong Kong’s greater focus on profitability and familiarity with business models for companies operating physical stores or working in fields such as semiconductors and precision engineering.

With new Chinese regulations, Chen said his clients — mostly traditional private equity firms — are looking more at traditional industrial companies and businesses that sell to other businesses, or sell to consumers without relying much on technology.
“That’s what our clients are taking a think about: ‘Does it make sense to look at those sectors if ultimately it will be a challenge to list in the U.S. given the regulatory concerns?'” Chen said. He added that clients are also rethinking their investment strategies with consideration for whether their minimum goals for a return might be harder to achieve because a Hong Kong listing resulted in a lower valuation.

What it means for investors

Faced with the potential of lower returns — or inability to exit investments within a predictable timeframe — many investors in China are holding off on new bets. That is, if they can raise money for their funds to begin with.
Data from Preqin Pro shows a sharp drop-off in fundraising by U.S. dollar-denominated and yuan-denominated China-focused venture capital and private equity funds in the third and fourth quarters of 2021.
For U.S. dollar funds focused on early-stage Chinese start-ups, annual fundraising since the pandemic started in 2020 has fallen below $1 billion a year — that’s down from $2.43 billion in 2019 and $5.13 billion in 2018, according to Preqin.

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While start-ups may be looking for support, U.S. dollar-denominated funds focused on China have been sitting on capital. A measure of undeployed funds, known as dry powder, reached $45 billion in June 2021 — the highest level for at least 10 years, according to the latest Preqin data.
“Due to uncertainty over exiting, we slowed our pace of investment in the second half of last year,” Ming Liao, founding partner of Beijing-based Prospect Avenue Capital, said in Mandarin, according to a CNBC translation. The firm managed $500 million as of the summer and had previously expected to list some of its invested companies in the U.S. last year.
“Practically speaking, the U.S. is the best path of exit for Chinese internet and technology companies,” Liao said. “There’s high acceptance of new models and high tolerance for unprofitability, while liquidity is very good.”

Last year’s average daily turnover for stocks in Hong Kong, a measure of liquidity, was about 5.4% that of the Nasdaq and New York Stock Exchange in the U.S., according to a China Renaissance report earlier this month.
Even for large Chinese companies like Alibaba and JD.com, the average daily turnover of their Hong Kong-traded shares has been between 20% and 30% of those traded in New York, the report said. The analysts added that U.S.-listed Chinese companies typically price their secondary listing in Hong Kong at a discount.
Chinese IPOs in the U.S. were headed for a record year in 2021, until Chinese ride-hailing company Didi’s listing in late June on the New York Stock Exchange drew Beijing’s attention. Within days, China’s cybersecurity regulator ordered Didi to suspend new user registrations and remove its app from app stores.
The move revealed the enormity of Chinese companies’ compliance risk within the country, and marked the beginning of an overhaul of the overseas IPO process.
Among several measures, the China Securities Regulatory Commission announced new draft rules in December that laid out specific requirements for filing for a listing abroad, and said the commission would respond to such requests within 20 working days of receiving all materials. The commission ended the public comment period on Jan. 23, without revealing an implementation date.

We expect this uncertainty to dampen investor sentiment, potentially depress valuations for Chinese IPOs in the US and make it more difficult for Chinese companies to raise funds overseas.

China Renaissance

In remarks to reporters last week, Li Yang, chairman of the government-backed think tank National Institution for Finance and Development, described the new draft rules on Chinese IPOs overseas as bringing the country further in line with international standards on institutional investing.
Meanwhile, the U.S. Securities and Exchange Commission in December asked Chinese companies to disclose more details about their regulatory risks and ties to government backers. White House sanctions on certain Chinese companies like SenseTime briefly disrupted IPO plans.
Foreign financial institutions involved with Chinese IPOs face rising “commercial risks” of the invested company “becoming sanctioned because of its reputation with the U.S. government,” Nick Turner, a Hong Kong-based of counsel with law firm Steptoe & Johnson. “This is now one of the key areas of focus in the due diligence process before any IPO.”

What it means for start-ups looking to list

The path to an IPO in Greater China or elsewhere remains uncertain, even if prices are favorable.
“For (Chinese) companies applying for an overseas listing, they likely must wait for further clarification from regulators of both sides, and may expect stricter scrutiny, regulatory clearance, and pre-approval from different agencies and authorities,” the analysts said.
“The new rules may impose long waiting periods for companies hoping to list abroad,” the analysts said. “We expect this uncertainty to dampen investor sentiment, potentially depress valuations for Chinese IPOs in the US and make it more difficult for Chinese companies to raise funds overseas.”

After the high-profile suspension of Alibaba-affiliate Ant’s planned IPO in Hong Kong and Shanghai in late 2020, authorities also delayed the public listing of computer manufacturer Lenovo and Swiss seed company Syngenta on the mainland last year.
More than 140 companies have active filings for Hong Kong IPOs, according to the Hong Kong exchange website. An EY report showed the backlog of companies wanting to go public in the mainland or Hong Kong remained above 960 as of the end of 2021, little changed from June, before the latest regulatory scrutiny.
On the pre-IPO end, 12 Chinese companies joined the list of new unicorns — private companies valued at $1 billion or more — in the second half of last year, according to CB Insights. In contrast, India added 26 unicorns and the U.S. gained 148 unicorns during that time.

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“IF RUSSIAN TANKS cross the border, markets will freak out.” That is the considered judgment of Helima Croft, head of commodity strategy at RBC Capital Markets, an investment bank, and a former analyst at America’s Central Intelligence Agency. Were Russia to invade Ukraine, the biggest impact would first be felt on Europe’s gas markets. But Ms Croft is not alone in thinking that the shock waves would spread widely.The potential for disruption stems from Russia’s huge importance for commodity markets (see chart 1). It is the world’s biggest exporter of natural gas, and the second-largest exporter of oil. It supplies nearly a tenth of the world’s aluminium and copper, and produces 43% of palladium, a key component of catalytic converters. It is also the largest exporter of wheat.The worst-case scenario is that the flow of these vital raw materials is cut off as tensions escalate. That could happen because Russian exports, or the payments infrastructure needed to facilitate them, are hit by Western sanctions. Alternatively, Russia could itself decide to halt some exports—notably of gas—in an attempt to cow its opponents.The mere fear of such disruptions has already sent prices higher. On January 26th Brent crude oil rose past $90 a barrel, a seven-year high; the European benchmark price of natural gas stood at about €90 ($101) per megawatt hour, compared with about €70 at the start of the year (see chart 2). Copper prices are flirting with multi-year peaks.The tightness of commodity markets makes prices all-too-sensitive to war talk. During the global financial crisis of 2007-09 both global industrial production and commodity prices plunged in tandem, notes Macquarie, another bank. The pandemic, by contrast, has been accompanied by a surge in both manufacturing output and raw-material prices. Unexpectedly robust demand and supply-chain disruptions fuelled a 20% rise in the broad Bloomberg Commodities Index in 2021. The prices of a dozen of its elements, from cobalt to coal, shot up by even more.Oil demand is roaring back towards pre-pandemic levels, even as supply has been slow to rise. Many members of the Organisation of the Petroleum Exporting Countries and its allies (which include Russia) are struggling to meet their quotas for increased production, because of underinvestment and covid-related complications. America’s shale firms have discovered capital discipline, favouring investor returns over drilling. The result is that global spare production capacity is falling to precariously low levels. Spare capacity for many metals, too, is limited.If war breaks out, the oil price could rise to $120 a barrel, reckons Natasha Kaneva, head of commodities strategy at JPMorgan Chase, a bank. Ross Strachan of CRU, a consultancy, says aluminium prices could rise to all-time highs. The precedent for the impact of geopolitical tensions on prices is not exactly heartening. Prices were turbo-charged in 2018, when America imposed sanctions on Rusal, Russia’s largest aluminium producer.Russia and Ukraine together export about 29% of the world’s wheat, and a big chunk of Ukrainian cultivation takes place in the regions that are most exposed to invasion. Carlos Mera of Rabobank, a Dutch firm, says withdrawing such volumes from the market would have an “extraordinary” impact, because the demand for wheat is so inelastic. Prices could easily double, he reckons. That would trigger a struggle to secure supplies, especially among the large importers of northern Africa and the Middle East.Some countries, such as China and Iran, might bypass Western sanctions and buy Russian metals and grains at a discounted rate. That could in principle offer relief by satisfying some demand. But China and Iran together imported 17m tonnes of wheat last year, hardly a match for Russian and Ukrainian exports of 59m tonnes. Falling grain stocks in America and Europe and bad weather in South America threaten to starve the market further, says Geordie Wilkes of Sucden Financial, a broker. Moreover, Russia is a big producer of urea and potash, important ingredients for fertilisers. An export embargo would give grain prices a further leg-up.For as long as tensions stay high, the pivotal role of energy in the economy means price rises will spill over to other markets, even if sanctions are not ultimately deployed. Expensive power has already caused some aluminium smelters to close in Europe. A surge in gas prices could cause more furnaces to shut down. It could also hit fertiliser production on the continent—for which gas is used as both raw material and fuel—hampering the next growing season.If the tensions are resolved altogether, then it might be possible to imagine markets cooling off. Saad Rahim of Trafigura, a trading firm, says that, thanks to a warm winter in Europe, which endured a natural-gas price shock late last year, “a lot of angst has been taken out of that market, although we still remain at very elevated price levels”. But the tightness of supply means that prices will cool off only a bit. Ms Kaneva reckons that the risks with oil are asymmetric. If peace prevails, the oil price would merely drop to $84 per barrel. But if war breaks out, “everything just goes up massively.” For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More