The broken nickel market is a warning to Wall Street

What’s happening: The LME hoped to ease back into business as usual on Wednesday. But it had to suspend the electronic trading of nickel shortly after it resumed due to a technical problem.

Darwei Kung, a DWS portfolio manager, said his team tried to execute trades at 4 a.m. ET. “That lasted two minutes,” or less, he told me.

On Thursday, the price of the metal fell to $41,495 a metric ton, its daily limit, as traders scrambled to sell shortly after the market opened.

Step back: Trade in many commodities — including other metals, agricultural products like wheat, and energy — has been turbulent since the pandemic scrambled supply chains.

But the invasion of Ukraine — a major exporter of wheat and corn — and subsequent sanctions on Russia, a top exporter of oil, gas, nickel, aluminum and palladium, has made matters way worse. Traders are struggling to determine whether there will be shortages, leading to major price moves.

“Clearly it seems like some of these markets are broken,” Warren Patterson, head of commodities strategy at ING, told me.

Issues have been most extreme in the nickel market. The LME had to halt trading for the first time since 1988 last week after prices doubled in just a few hours. The roots of the chaos have been traced to Xiang Guangda, whose company, Tsingshan Holding Group, placed big bets that the price of nickel would fall. The wager backfired after the invasion sent metals soaring.

But there are also signs of strain elsewhere. Patterson said the number of traders placing bets on oil has plunged as people wait on the sidelines for a break in volatility.

Brent crude futures, the benchmark for global crude, leaped above $139 per barrel after the invasion, then plunged almost 30% a week later.

Why it matters: When traders pull out of the market because they think conditions are too murky, and money dries up, it only sets the stage for bigger swings, since there are fewer prospective buyers and sellers.

“[It’s] a vicious circle,” Patterson said.

Those swings can make it hard for the market to function properly. Traders may get “margin calls” from their brokers or other market players, asking them to insure against growing losses by coughing up more money. If they don’t have the cash, the situation can quickly deteriorate, triggering a chain of unexpected consequences.

The European Federation of Energy Traders, a trade group whose members include BP (BP) and Trafigura, recently warned governments and central banks that the market needed emergency support in the face of historic volatility. They said there was a “significant risk” that traders may not have the money to deal with margin calls, which could cause major instability.

“It is not infeasible to foresee a situation in which generally sound and healthy energy companies, with significant and valuable asset portfolios, are unable to access cash to meet these unprecedented margin requirements,” they wrote in a letter dated March 8.

The Fed hikes interest rates for the first time since 2018

The Federal Reserve slashed interest rates to rock-bottom at the start of the pandemic. Now, for the first time since 2018, it’s starting to hike them again, in a bid to put a lid on the highest inflation in decades.

The latest: The Fed lifted its benchmark interest rate by a quarter of a percentage point on Wednesday and indicated that it was prepared to aggressively back away from crisis-era support for the economy, if necessary. Officials forecasted six additional hikes this year.

“We feel the economy is very strong and will be able to withstand tighter monetary policy,” Fed Chair Jerome Powell told journalists after the announcement.

Stocks rallied after the news, though US futures pulled back Thursday morning. The S&P 500 climbed 2.2% on Wednesday, while the tech-heavy Nasdaq Composite leaped 3.8%.

Investors were heartened by the Fed’s emphasis that its next steps will depend on the latest economic data. Fears have been growing that if the Fed withdraws stimulus too quickly, it could push the economy into a recession.

Stocks in mainland China and Hong Kong, which were battered earlier this week, continued to rebound after Beijing pledged to support the market and prop up the country’s economy.

Hong Kong’s Hang Seng rallied 7%. The Shanghai Composite gained 1.4%. Tech giant Alibaba, which had been facing steep selling pressure, has jumped 43% over the past two trading sessions.

There’s more: The Bank of England, which is a few steps ahead of the Fed, pushed its main interest rate to its pre-pandemic level on Thursday.

Will Russia default on its debt?

Russia says it has ordered the $117 million in interest payments it owed Wednesday to be sent to investors, attempting to avoid its first international default in more than a century. But it’s not out of the woods yet, my CNN Business colleague David Goldman reports.

That’s because the funds the country used to make the debt payments came from Russia’s frozen foreign assets, sanctioned because of its invasion of Ukraine — so it remains unclear whether investors will receive their money.

Anton Siluanov, Russia’s finance minister, told state media Russia Today that the country had made good on its obligations to creditors.

But the “possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us,” Siluanov said, according to RT, warning that the payment might not go through if the United States disallows it.

“We have the money, we made the payment, now the ball is in America’s court,” he said.

A spokesman for the Treasury said the United States would allow the payments to go through.

That said: More payments — some much, much larger — are coming due soon. And if Russia tries to pay in rubles, not dollars, that would constitute a default, according to Fitch Ratings.

If the Russian government defaults on its foreign obligations for the first time since the Bolshevik revolution, it will trigger a scramble to determine which investors loaned Moscow money, and whether their potential losses could reverberate through financial markets.