For anyone wondering how commodities will do out of the USA(A+) downgrade, Goldman Sachs takes a stab at predicting the course of events in its Monday commodities research note.
In a nutshell, it’s going to get riskier out there, but the bullish case for commodities lives on:
GDP views and supply shortfalls still suggest commodity upside
Recent unexpected deterioration in macro indicators that has motivated Goldman Sachs economists to lower global GDP growth forecasts – on top of the unsettling sovereign debt issues and the ongoing tension between the inflation/growth tradeoff in the Emerging Markets (EM) – have slashed commodity prices and returns in recent days and have heightened uncertainty around the commodity outlook. However, several factors are leading us to keep our constructive commodity views over the next year intact, including still-high expectations of global GDP growth sufficient to tighten key commodity markets, expected strong growth in EM – especially given the ability to reverse or ease tightening policy to buoy growth – and commodity supply disappointments that have substantially offset if not dominated demand disappointments in key markets.
Which means Goldman Sachs, for one, will still be advising clients to be long commodities, maintining overweight recommendations for Brent crude, copper and soybeans in particular:
We maintain that commodity markets will continue to tighten as long as global economic growth remains broadly positive and the EM economies in particular continue to perform, which remains the mainline view. Accordingly, we maintain our recommended long positions in key cyclical commodities, including Brent crude oil, copper and soybeans and our Overweight recommendation for commodities relative to other asset classes within the portfolio context. The sharp sell-off across the commodity complex in recent days reinforces these views.
As for that negative macro risk, that just makes them bullish gold:
Rising risk of a negative global event increases the risk to our constructive views and reinforces our conviction in long gold The growth downgrades suggest that the upside risk skew to our price forecasts has been slightly reduced, all else equal. Further, a global negative event would clearly be negative for all cyclical assets. The rising risk of such an event increases the downside risk around our constructive views and reinforces our conviction in our long gold recommendation.
As for gold, that recommendation is likely to stay intact for as long as real rates remain supressed:
Now let’s see if the commodities markets react in the traditional way to the Goldman bullish call…
Why…. WTI crude is up already!
Goldman jolts commodities market – FT Alphaville
Goldman says there’s been a copper collateral crackdown – FT Alphaville
Goldman Sachs is hot for soybeans – FT Alphaville