Still reeling from Fed Chair Jerome Powell’s longer-term higher comments last week, it appears that riskier assets like stocks are poised for another blow, on Monday.
“The stock market can’t collapse more than 5% based on one man’s words,” grumbled Chris Robke, chief economist at FWDBONDS, who sees a major credibility problem for the central bank. “Fed officials set inflation on fire with a lot of quantitative easing and now they say they know what to do now that inflation is out of control. Nobody believes that.”
As we head into the worst calendar month on Wall Street, economists anticipate more Fed tightening, and say Friday’s strong jobs report will only support rate hike resolve.
Where are the havens? Dividend stocks, the front end of the credit markets, and Latin American currencies and bonds are just some of the suggestions.
our Today’s call From Goldman Sachs offers another. They see a buying opportunity with the recent soft correction in commodities and reducing risks elsewhere. They see stocks threatened by sticky inflation and a potentially hawkish Fed surprise.
Commodities are “the best asset class to own during a late-cycle phase where demand remains higher than supply. Physical fundamentals point to some of the tightest markets in decades,” said a team led by senior commodity strategist Sabine Schell in a new note.
Goldman Sachs
The recent downturn in agricultural and industrial goods was due to the global recession being priced in by traders. Goldman said recession fears have affected commodities more than any other asset class. However, the bank believes that the recession will be mostly confined to Europe, with the United States and China avoiding recession.
Goldman Sachs
They say it’s just that there aren’t enough goods to get around.
“As more declines in inventory lead to depletion risks, it is likely to enhance commodity returns for investors. In other words, with the risk of inventory depletion much greater than the risk of an imminent global economic recession from our view, we believe that the commodity index decline should be sharper,” Shiels said.
Pullback refers to the futures contract prices associated with a particular commodity being traded higher than the current spot price.
In line with this view, Goldman raised its forecast for the S&P GSCI 12-month commodity index to 38.8%. The bank also expects a 12-month return of 51.7% for the energy sector.
Goldman Sachs
The drivers behind this influx of commodities will be “small in nature as further price hikes are needed to bring demand back in line with supply in the absence of inventories,” Goldman says, adding that such hikes will create “extreme” bouts of defaults.
In the year 2000 or [2007-2008]For example, the depletion of inventories has turned the oil markets into a highly volatile pricing regime where sharp price hikes have led to significant lags. Even in the absence of a significant price hike, Goldman said, this could result in exceptionally high returns for investors.
And while pullbacks have been more common in energy, Goldman’s team sees it spreading to base metals, particularly copper, corn and soybeans where volatility is likely to increase.
Specifically, despite strong year-to-date returns, they see energy and agriculture as pioneering. “With oil being a commodity of last resort in an era of severe energy shortages, we believe that the downturn in the entire oil complex provides an attractive entry point for long-term investments only.”
A recent McKinsey report highlighted the deteriorating state of the global food supply in 2023, due to war in one of the world’s most important food markets – Ukraine – and climate change. The latest USDA corn report lowered next year’s yield rating.
Read: There’s a new super-cycle emerging for the economy, and these are the stocks that stand to benefit
markets
ES00 stock futures,
YM00,
NQ00,
Underwater, two-year Treasury yield TY00,
TMUBMUSD02Y,
At a level not seen since 2007, the DXY dollar,
climbs and gold GC00,
is down. CL.1 oil,
slightly higher, while NG00 natural gas prices,
go up. Asian and European stocks are following the lead of Wall Street and Bitcoin BTCUSD,
Less than $20,000.
commotion
After Powell’s market-shattering remarks, expect a lot to focus on the data. Monday is quiet, but the rest of the week will bring consumer confidence, the latest ISM index, and Friday’s most important payroll data. New York Fed President John Williams is among the few expected speakers this week.
Pinduoduo PDD,
It rises after the China-based agricultural company that connects consumers with producers reported a rise in revenue and profits.
The best of the web
‘Climate disaster’ in Pakistan as floods kill more than 1,000 people and wipe out crops
IAEA monitors are finally on their way to the Zaporizhzhya plant
graph
After the S&P 500 failed late last week at 4200, which saw the largest volume in the past two years, all eyes are on 3900, BTIG’s chief market strategist Jonathan Krinksey told clients.
“While we remain cautious in the near term, we believe the June lows will continue as weakness under 4000 would see sentiment and positions turn lower enough to establish a proper entry point as the fourth quarter approaches,” he said. But if that breaks, they’ll tear up the game manual a little bit, he says.
BTIG
Indications
These were the most searched indicators on MarketWatch as of 6AM ET:
|
ribbon |
Safety name |
|
TSLA, |
Tesla |
|
BBBY, |
bed bath behind |
|
AMC, |
AMC Entertainment |
|
GME, |
Jim Stop |
|
Monkey, |
Favorite Stocks AMC Entertainment |
|
AAPL, |
apple |
|
NIO, |
NIO |
|
NVDA, |
nvidia |
|
AMZN, |
Amazon |
|
Baba , |
Ali Baba |
random readings
Activists mourn the “man in the hole”, the last Brazilian tribe from the Amazon
NASA’s New Moon rocket is ready to take off on Monday
The Need to Know program starts early and is updated until opening date, but sign up here to have it delivered at once to your email inbox. The emailed copy will be sent out at approximately 7:30 AM ET.