Here’s what Goldman thinks is the next big deal with no alternatives

The last trading day of May was marked by weak inventories and a surge in crude prices, which climbed after the European Union finalized a partial ban on Russian oil imports following the country’s invasion of Ukraine four months ago.

This brings us to our daily call From Goldman Sachs, he believes commodity trade is nascent and “there is no other option”.

As a team led by Jeffrey Currie, head of commodities research at Goldman Sachs, explained, as central banks hit the brakes to rein in inflation, there are few other options for hedging macro risks. Stocks are now negatively correlated with inflation expectations, suggesting investors are more concerned about the risks to stocks and valuations.

“As central bankers consume liquidity faster than the economy can generate new capacity, financial assets will continue to underperform physical assets such as commodities,” Currie said. Goldman Sachs is so convinced, the bank’s portfolio strategy team only maintains overweight recommendations for commodities and cash for the next quarter.

Goldman Sachs Global Investment Research

“In fact, among the major risk assets, commodities are the only source of value, despite the obvious headwinds from China’s lockdown, slowing manufacturing and rising interest rates,” Currie said, adding that it was not “crowded” either. trade”. They estimate that since November 2021, net inflows into index funds have flattened as investors took profits following the Russian invasion.

Goldman Sachs believes prices will move higher due to hoarding throughout the space. For example, China’s lockdown restrictions pushed commodity fundamentals into recession from early April to mid-May, but prices held up, they noted.

“As we saw in the gasoline market in 2006, when investors emerged after a period of scarcity and price volatility, market participants from refiners to manufacturers began hoarding spare inventories as a hedge against future scarcity sex,” Currie and team said.

“Despite the build-up in inventories, consumers continue to turn to higher travel and leisure spending as stimulus pressure from China continues to build, creating a backwardation market and signaling strong preparations for the next leg higher,” he added.

The situation is now seen in commodities, where the Russian invasion of Ukraine triggered a behavioral shock that prompted policymakers and upstream manufacturers to try to build thicker, more resilient supply chains, as well as trade wars for everything from soybeans to crude oil. Preventive Inventory.This is what China is trying to do restore the economy and run after locking.

Goldman Sachs blamed the lack of large inflows in commodities on heightened investor uncertainty across the economy, but said scarcity in many commodities is not going away, even as weak macroeconomic conditions confuse investors.

“While today’s chaotic macro risks are more two-sided than immediate post-invasion risks, in our view, now is not the time to change expectations for commodity outperformance,” the Goldman team said.

They forecast a return of 21% for iShares S&P GSCI Commodity-Indexed Trust GSG,
-0.83%
in a 12-month view.

“With inventories and spare capacity remaining low in energy and agricultural markets, any small shock to supply will continue to have a large impact on prices,” Goldman said. “As we’ve often shown before, commodities are inflationary surprises. The only persistent hedge, usually the source of inflation.
economy. ”

“So even small allocations to commodities can be substantial
impact on portfolio performance during unexpected inflationary events,” Currie and team said.

buzzing

President Joe Biden will Meeting with Fed Chairman Jerome Powell on Tuesday The two met for the first time since November to discuss economic issues.In a Wall Street Journal op-ed, Biden Commitment not to interfere in Fed policy.

Elsewhere, Fed Governor Christopher Waller said on Monday that a half-point rate hike would continue until inflation subsides. US data on Tuesday includes a pair of home price indices for March and consumer confidence for May.

Yamana Gold AUY,
+3.68%
Shares soar after Gold Fields GFI,
-23.44%
Announced acquisition of the Canadian miner for $6.7 billion.

China Factory and Service Industry Activities May improved, but activity slowed due to COVID lockdowns, which started Relax in Shanghai and Beijing.

Nearly a week after 19 children and two teachers were killed in the country’s second-worst school shooting, U.S. politicians remain divided over gun control. Canada plans to ban sale of handguns.

market

not credited

us Stock Index Futures
ES00,
-0.57%

YM00,
-0.37%

ES00,
-0.57%
lower, while Treasury yield
TMUBMUSD10Y,
2.853%

TMUBMUSD02Y,
2.552%
These comments from Fed Waller are climbing. diesel price HOM22,
-0.34%
Up about 4%, with both U.S. and Brent crude at CL.1,
+0.17%

BRN00,
+0.50%
Yes Towards longest monthly winning streak Since 2011. Among cryptocurrencies, Bitcoin BTCUSD,
-0.02%
Back above $31,000 for the first time since early May.

read: Deutsche Bank said investors want this asset inflation to remain high. Crypto isn’t even ‘on the radar’

ticker

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