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Out this morning from Goldman’s Allison Nathan: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.
We maintain our long trade and Overweight recommendations
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.