Goldman Sachs Survey: More Than Half Our Clients Expect Negative Returns for Global Equities This Year

The S&P 500-stock index is down 9 percent since the start of the year on concerns ranging from negative interest rates to a hard landing in China. A new survey from Goldman Sachs Group Inc. shows that a growing proportion of its clients are worried about a global recession.

"More than one third of the clients attending our recent macro conference in Hong Kong expect cash will post the highest risk-adjusted return of any asset class in 2016. Nearly 60 percent of the participants forecast global equities will deliver a negative return this year."

Kostin and team don’t discredit the heightened concerns, but they do point out that consumers are still sending a number of strong signals that point towards a continued expansion.

The team said that the strength of the consumer should not be overlooked. "Many investors believe the economy is on the precipice of a recession. However, quantitative and qualitative measures of consumer activity suggest spending will continue and the economic expansion will persist."

So unless the consumer starts exercising more caution and spending decelerates, Goldman remains bullish on the global economy. The most recent retail sales numbers were relatively strong across the board, increasing for a third straight month in January, with 8 of 13 major categories showing increases in demand from the prior month.

It's worth noting that Goldman started the year with one of the lowest 12-month targets for the S&P 500, at 2100, but with a number of other firms lowering targets, Goldman is now near the front of the pack. Stocks would have to rise 13 percent to reach that target.

Stocks

The Asia Pacific gauge dropped 0.8 percent as of 8:10 a.m. London time, with Japan’s Topix tumbling 1.1 percent after earlier jumping more than 1 percent. The Shanghai Composite Index advanced for a second day, gaining 1.1 percent.

The Stoxx Europe 600 Index rose 0.4 percent. “Stay cautious,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion.

“Don’t be afraid to reduce risk because we expect things to be volatile from here -- it’s a relatively defensive message. There are a lot of economic issues that need to be worked through. We’ve been incrementally paring back” risk positions, including equities, he said.

Australia’s S&P/ASX 200 Index declined 0.6 percent, led by a 4.2 percent slump in a gauge of energy stocks. Woodside Petroleum Ltd., the nation’s second-largest oil and natural gas producer, tumbled 6.9 percent after reporting a 99 percent collapse in full-year profit amid the rout in energy prices.

Futures on the Standard & Poor’s 500 Index retreated 0.2 percent after the benchmark capped its best two-day gain since August on Tuesday, rising 1.7 percent.

Asia Stocks Drop With Won After Yuan Fix; Treasuries Advance

Asian stocks fell with South Korea’s won and the yen strengthened after China lowered the yuan’s daily fixing by the most in six weeks. Malaysia’s ringgit slumped to a two-week low as a deal between Saudi Arabia and Russia to freeze oil production failed to assuage anxiety over this year’s crude selloff.

The MSCI Asia Pacific Index of shares dropped for the first time in three days, while the Indonesian rupiah and the won depreciated more than 0.5 percent amid speculation their central banks will bolster stimulus to help boost economic growth. European stocks opened higher, while U.S.

equity-index futures declined. American crude was below $30 a barrel after the world’s two biggest oil producers agreed to hold output near record-high levels, dashing speculation they would cut it.

Central bank attempts to calm global markets this year amid unprecedented volatility have had mixed success, with Japanese shares initially falling after the Bank of Japan announced a move into negative interest rates. Japan’s overnight call rate fell below zero for the first time in a decade, traders said.

Oil’s volatile journey in 2016 has fueled that uncertainty, amid concern over the impact on inflation. Minutes of the Federal Reserve’s most recent meeting, where officials indicated they were monitoring the turmoil in markets, are due Wednesday. Chair Janet Yellen has subsequently indicated the global ructions may delay further tightening of U.S. monetary policy.

Saudi Oil Minister Signals More Action May Follow Output Freeze

Saudi Arabian Oil Minister Ali Al-Naimi said the output freeze agreed with Russia and two other countries on Tuesday might be followed be more action to improve the oil market.

“The reason we agreed to a potential freeze of production is simply the beginning of a process to to asses in the next few months and decide whether we need other steps to stabilize the market,” Ali Naimi said after meeting the Russian, Qatari and Venezuelan oil ministers in Doha. “We want a stable oil price.”

His comments will feed speculation that today’s meeting may be the first step on the way to an agreement among the world’s leading oil producers to curb production and revive prices. Crude has slumped to a 12 year-low earlier this month as oil-producing countries fought to defend market share, allowing global stockpiles to reach an all-time high.

The production freeze, set at January levels, is conditional on other nation’s agreeing to participate, Russia’s Energy Ministry said in a statement after the meeting ended. The deal doesn’t yet include Iran and Iraq, two OPEC members that have increased output in recent months.

According the IEA, Saudi Arabia produced 10.2 million barrels a day in January, below the most recent peak of 10.5 million barrels a day set in June 2015.

Russia produced nearly 10.9 million barrels a day in the same month, a post-Soviet record, according to official data. Venezuela pumped 2.4 million barrels a day and Qatar produced 680,000, according to the IEA.

Brent Jumps Above $35 as Saudi Arabia Meets With Russia in Qatar

Brent crude surged above $35 a barrel as energy ministers from Saudi Arabia and Russia, two of the world’s biggest oil producers, met in Doha on Tuesday to discuss the market.

Futures climbed as much as 6.5 percent in London, heading for the biggest three-day gain since August. Saudi Oil Minister Ali al-Naimi is speaking with Russia’s Alexander Novak, Qatar’s energy ministry said. Representatives from Qatar and Venezuela are also attending, the ministry said.

Venezuela has lobbied exporters including Russia, Iran and Saudi Arabia to arrange a meeting between OPEC members and other suppliers in an attempt to reach an agreement to balance the market. Oil is still down about 5 percent this year amid the outlook for increased Iranian exports and BP Plc predicts the market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day.

Brent for April settlement advanced as much as $2.16 to $35.55 a barrel on the ICE Futures Europe exchange and was at $35.32 at 8:17 a.m. in London. The contract rose 3 cents Monday to close at $33.39 after an 11 percent gain Friday. The European benchmark crude was at a premium of $1.82 to West Texas Intermediate for April.

Yellen Heads for March Crossroads as Market Urges Policy Detour

Janet Yellen has her eyes on the road.

After the Federal Reserve chair assured U.S. lawmakers that the U.S. economy is strong enough to weather a gradual tightening of monetary policy, she is set to spend the next four weeks measuring the bumps that financial-market turbulence put on the path to higher interest rates.

With jobless data signaling full employment and inflation expected to rise toward 2 percent over the medium term, the March 15-16 meeting of the Federal Open Market Committee will be a test of how data dependent policy makers are prepared to be.

Since the Fed raised interest rates for the first time in almost a decade in December, Yellen and her colleagues have stressed that the pace of future tightening will be determined by incoming data about the economic outlook.

While those readings don’t undermine the case for higher borrowing costs, tighter financial conditions and market volatility reflecting uncertainty over global economic prospects are risks that may stay Yellen’s hand.

The mantra Yellen recited frequently during her testimony to the House Financial Services Committee and the Senate Banking Committee last week was that monetary policy is “by no means” on a preset course. Her comments upstage the minutes of the Jan. 26-27 meeting the Fed will release on Wednesday, though these will still provide important clues about the balance of views within the committee.

Goldman Channels FDR's `Nothing to Fear' With Sell Gold Call

Goldman Sachs Group Inc. says it’s time to bet against gold as bullion’s rally to the highest level in a year isn’t justified, backing the bearish call with a comment from a former U.S. leader in a report that was issued, appropriately enough, on Presidents’ Day. Prices fell.

Gold will slump to $1,100 an ounce in three months and $1,000 an ounce in 12 months, analysts including Jeffrey Currie and Max Layton wrote in the report that was dated Feb. 15 and received on Tuesday. It was headlined with a remark from former President Franklin D. Roosevelt,.

There’s “nothing to fear but fear itself,” the analysts entitled the seven-page note, channeling comments from Roosevelt’s 1933 inauguration when the U.S. economy was being ravaged by the Great Depression. “It’s time to sell the fear barometer,” the bank said, and recommended shorting gold.

Gold jumped to highest since February 2015 last week as sinking equity markets, weaker oil prices, and diminished bets for higher U.S. borrowing costs spurred haven demand. Prices were further boosted by the spread of negative interest rates and concerns about a crisis in Europe’s banks. 

Goldman said it still expected rates to rise, putting the odds of U.S. recession at just 15 to 20 percent, and rejected the notion that a re-run of the crisis was likely.