Key insights
- Goldman Sachs suggests that de-escalation of geopolitical tensions could lead to a resumption of global equity outperformance and dollar weakness. Conversely, a prolonged disruption at the Strait of Hormuz could pressure equities and boost the dollar as investors seek safer assets. The analysis hinges on the duration and severity of the potential energy supply shock and its impact on global growth and inflation.
Investing.com -- Goldman Sachs highlighted in a note on Friday that equity markets could resume their recent outperformance and the dollar may weaken if geopolitical tensions ease.
Analyst Kamakshya Trivedi told investors that macro markets continue to grapple with “too much inflation, too little growth” as investors assess the impact of the Iran conflict and the potential duration of the energy shock.
Goldman Sachs said “central bank pricing has overshot most modal upside estimates of what is warranted,” reflecting fears of what could be “potentially the largest energy supply shock since the 1970s.”
While rates markets have seen the sharpest repricing, the bank said moves across equities, credit and currencies have been “smaller,” with investors differentiating between energy exporters and importers.
The key risk, Goldman Sachs wrote, is whether the disruption at the Strait of Hormuz becomes prolonged and forces markets to “worry about severe growth downside.”
That scenario “would put more outright pressure on equities and EM… and boost the Dollar further” as investors retreat toward safer assets.
But the bank emphasized that the opposite holds if tensions ease.
“If a swifter de-escalation can be achieved, in line with recent optimism, some of those prior themes of global equity outperformance and Dollar weakness should resume and may even be reinforced by recent events,” the bank concluded.