Goldman Sachs is bullish on commodities for four reasons by Holly Ellyatt
Oil markets got a welcome boost when OPEC and its friends decided to cut supply again in December, another push is coming from news of Chinese economic stimulus that could propel demand.
The investment bank is bullish on commodities -oil and gold - for several reasons, ranging from the Federal Reserve signalling it will hike rates less aggressively-than-expected and a weakening dollar.
Expectations for a decreased oil supply, potential Chinese stimulus and political uncertainty are buoying hopes for gains in the commodities sector, according to Goldman Sachs.
Jeff Curries, global head of Commodities Research at Goldman Sachs, told CNBC on Wednesday that the bank is bullish on commodities oil and gold for several reasons, ranging from the Federal Reserve signalling it will hike rates less aggressively than expected and a weakening dollar.
"We're bullish on commodities," Goldman's Currie told CNBC's Joumanna Bercetche. "One, because you don't have the rising (interest) rates anymore and in fact, they've come off and they're on pause.
Two, the dollar's really strong and likely to weaken from here as opposed to strengthen like it did last year." A weaker dollar makes oil more attractive as oil is denominated in dollars.
Currie added that a predicted rise in Chinese demand and falling global oil supply also added to the bullish outlook for oil.
"China has given notice that it's stimulating (its economy) and then you have OPEC ready to cut production," he said, speaking to CNBC at Goldman's global strategy conference in London.
China's central bank injected a net 560 billion yuan ($83 billion) into the banking system on Wednesday, the highest ever recorded for a single day, in a sign that it's willing to inject liquidity into a slowing economy. Chinese economic growth is driving higher oil demand.
U.S. sanctions on Iran instigated in November failed to have as deep an impact on supply as forecast as a handful of waivers were granted to oil consuming countries , taking away a need for oil kingpins Saudi Arabia and Russia to produce more to fulfil a potential shortfall. Currie said an excess of oil built up ahead of the production cut would clear in early 2019.
"They're cutting. They had a huge increase in production in September, October and November in anticipation to the Iranian sanctions and we got a lot more waivers than expected and they're now bringing that supply off the market. It did leave the market with an
extra 140 million barrels that need to be eaten through during the first half of the year. We think that's likely to happen," he said.
He said a "terrible trio" of factors had affected oil's performance in mid-2018.
"Rising rates, rising dollar and rising oil. You put those three together and they either always lead to a recession or to a mid-cycle pause. Now we look at it and go 'hey, the Fed's on pause', we're in a mid-cycle pause and that's usually a buy signal for commodities."
Source: CNBC
https://finance.yahoo.com/news/goldman- ... 00819.html
It's all about "how much you made when you were right" & "how little you lost when you were wrong"