Are we past the worst financial side effects of Russia’s invasion of Ukraine?
Michael Hartnett, chief investment strategist at Bank of America, created a war inflation chart. It’s a simple index of Brent crude oil BRN00, +1.71%, European natural gas and wheat W00, -0.57% prices — the three commodities mostly clearly tied to the direction of the conflict.
Wheat prices have dropped 44%, Brent oil has dropped 24% and European gas has dropped 21% from their peak. Hartnett says it doesn’t make sense for Russia to close the Nord Stream 1 gas pipeline indefinitely. That pipeline is shut until July 21 for scheduled maintenance.
Hartnett, who’s been pessimistic on stocks, said there are risks to the consensus view of both a shallow recession, and that shallow inflation will kill inflation, allowing a pivot by the Fed to refocus on growth. He says in real terms — that is, adjusted for inflation — policy rates are still deeply negative, at -6.7% in the U.S., -8.8% for the eurozone, -6.1% in the U.K. and -2.5% in Japan.
A spiking dollar DXY, -0.25%, he adds, often portends credit events, as it did in 1998, 2008 and 2020. The dollar reached new 20-year highs this year as the greenback rallied against the euro and the Japanese yen.
All that said, he gave levels where investors want to buy stocks. A S&P 500 SPX, -0.30% at 3,600 would be grounds to “nibble,” at 3,300 would be room to “bite,” and at 3,000, it would be time to “gorge.”
The S&P 500 index ended Thursday at 3,790.