Goldman: Commodity prices, while high, won't derail the global economy
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Cons staples leads S&P sector gainers; Industrials falls most
Euro STOXX 600 index falls ~0.4%
Dollar, gold rise; crude and bitcoin fall
U.S. 10-Year Treasury yield rises to ~4.65%
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GOLDMAN: COMMODITY PRICES, WHILE HIGH, WON'T DERAIL THE GLOBAL ECONOMY
Amid escalating geopolitical tensions in the Middle East and a demand recovery, commodity prices have risen since the start of 2024, raising questions around whether they could prompt a pickup in inflation and result in more hawkish central bank monetary policy.
Brent oil prices have risen ~14% year-to-date to trade around $88 on concerns of a broadening conflict in the Middle East, although so far they remain below the $120 barrier reached two years ago after the outbreak of the war in Ukraine.
And according to a research noted from Goldman Sachs strategists, the upside risk to global inflation from higher oil prices is fairly limited. The strategists say current prices include a geopolitical risk premium of $5-10 and that global spare production capacity remains fairly elevated.
These strategists are estimating a $90 per barrel ceiling on Brent barring further geopolitical risks to supply, providing some "insurance" against further oil price spikes.
GS also believes that the pass-through from oil and other commodity shocks is "likely to be much lower now that the economy has cooled and inflation has returned to near-normal level".
Higher crude prices would not even imply a remarkable slowdown in growth, the broker said.
"The recent increase in oil prices implies a 0.1 points drag on global GDP in 2024, while the GDP hit would rise to a still moderate 0.3 points in the upside scenario where oil prices rise to $100 per barrel", it added.
The global economy is forecast to expand 2.6% in 2024, according to GS' economists.
(Matteo Allievi)
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