Need to Know: The last time oil spiked like this, the world escaped recession. Why the risks are higher this time.

Back then, supply chains were disrupted by the Japanese earthquake and tensions were high due to the Arab Spring. Despite oil surging 30% in real terms, the world escaped recession. She identified three reasons — oil prices weren’t volatile even as they increased, there was falling energy intensity and there was an ample monetary policy cushion. Even so, growth forecasts were lowered and inflation expectations were raised.

Now, however, there are key differences. The scale of Russia’s invasion of Ukraine is what she called a worst-case scenario. “We think the oil market sees the security of Russian energy supplies as significantly compromised,” she said. Concerns about the reliability of Russian energy flows will limit the downside caused by the return of Iranian volumes, rising inventories, slowing demand growth and upside surprises in U.S. supplies.

Another key difference is that the new shock comes with inflation pressures already built up — in fact Eurostat just reported the largest year-over-year surge in eurozone consumer prices as this story was being written. “While central banks would normally tend to look through supply-driven inflation pressures, this is likely to be difficult with headline CPI inflation already at multidecade highs in economies like the U.S. and U.K.,” she said.

The chart

Are hedge funds losing their touch? The most popular hedge fund long positions have suffered their worst 12-month return relative to the S&P 500 on record, according to Goldman Sachs. Some of that underperformance can be explained by the single-day price declines in Facebook parent Meta Platforms
FB,
-3.57%
and Netflix
NFLX,
-2.10%.
And despite hedge funds rotating from growth to value, Microsoft
MSFT,
-1.29%,
Amazon
AMZN,
-1.58%,
Alphabet
GOOGL,
-0.74%,
Meta Platforms and Apple
AAPL,
-1.16%
were still the top five hedge fund VIPs this quarter.

The buzz

A convoy of Russian tanks advanced slowly on Ukrainian capital of Kyiv, as they also continued their assault on the ports of Odessa and Mariupol on a seventh day of invasion. A Kremlin spokesman said a Russian delegation will be ready by the evening to resume talks with Ukraine. Russian Foreign Minister Sergei Lavrov on Wednesday said a third world war would be “nuclear and destructive,” according to comments reported by the RIA news agency and translated by Reuters.

President Joe Biden used his first State of the Union address to vow to fight Russian aggression and tame soaring inflation. George P. Bush, the nephew of President George W. Bush, will face Texas Attorney General Ken Paxton in a Republican runoff. The gubernatorial race will be Republican Gov. Greg Abbott versus Democrat Beto O’Rourke, who ran for president in 2020.

Federal Reserve Chair Jerome Powell is set to start two days of Congressional testimony on monetary policy, as the central bank is due to release its Beige Book of economic anecdotes at 2 p.m. Eastern. The ADP report on private-sector payrolls is due at 8:15 a.m. Eastern. How much of a signal the report provides is debatable — last month, the ADP said 301,000 jobs were lost in January, while the Labor Department said 444,000 private-sector jobs were created.

Nordstrom
JWN,
-5.79%
shares vaulted 32% higher in premarket trade, as the retailer topped earnings expectations by reducing promotions, and guided for fiscal earnings that were as much as 175% above consensus estimates. Hewlett Packard Enterprise
HPE,
-3.20%
 lifted its profit forecast for the year.

Exxon Mobil
XOM,
+0.96%
became the latest energy giant to exit Russia, saying it is halting its operations at the Sakhalin-1 oil and gas venture.

The market

Back and forth, back and forth — U.S. stock futures
ES00,
+0.60%

NQ00,
+0.67%
were pointing higher Wednesday after the 1.6% tumble in the S&P 500 on Tuesday.

Oil prices
CL.1,
+5.97%
continued to vault higher, rising by some $5 per barrel. Wheat
W00,
+5.64%
prices also were surging. Gold
GC00,
-0.66%
futures fell, and the yield on the 10-year Treasury
TMUBMUSD10Y,
1.760%
edged up to 1.75%.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

Random reads

A Paris museum had to dismantle the wax figure of Russian President Vladimir Putin because it kept getting defaced.

Credit Suisse has asked investors to destroy documents tied to rich clients’ yachts and jets, according to letters seen by the Financial Times.

The Moon is about to get whacked by three tons of space junk.

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