Premium"The Next ~48 Hours Look Tricky": Goldman's One-Delta Desk-Head Warns 'Outcomes Remain Very Wide-Tailed'
Markets have reverted overnight and yesterday’s rally felt like a good opportunity to take some headline risk down...
As Goldman Sachs One-Delta desk-head, Rich Privorotsky, pointed out this morning: It’s still unclear where we stand on negotiations…whether anything happens today or slips into the weekend.
The self-imposed deadline is fast approaching and U.S. troops/ships en route to the Middle East keep the specter of escalation alive.
The next ~48 hours look tricky as anxiety rebuilds and positioning shifts toward “how much do I really want to own into the weekend.”
Outcomes remain very wide-tailed.
The modal view still feels like a lack of progress in the first round of talks, with kinetic elements snapping back, but enough hope for a second round to keep things contained.
The real tail risk is attacks on critical infrastructure…desalination and power…which would imply a much longer and more structural disruption to the Gulf.
Second Order Effects
In the meantime the market is increasingly short time.
The scale of disruption in diesel and the price spike is already feeding demand destruction globally.
Second order effects spilling over Thailand’s fishing industry is a good example: “surge in diesel prices triggered by the U.S.-Israeli war on Iran is pushing Thailand’s multibillion-dollar fishing industry towards a standstill…boats could be idled within days unless the government steps in.” (RTRS)
There will be many versions of this across Asia and globally if this drags on for more than a few weeks.
Probably could have done without this “at least 40% of Russia's oil export capacity is at a halt following Ukrainian drone attacks, a disputed attack on a major pipeline and the seizure of tankers, according to Reuters calculations based on market data.” (RTRS)
Rates
Another weak auction yesterday (5yr Tails at highest yield since July...bid to cover lowest since 2022 ) and it’s starting to feel like something isn’t quite right.
The cleaner explanation is a cross-asset liquidity grab.
If producers can’t monetize oil flows, they need to raise cash elsewhere…which could be contributing to a correlated sell-off across rates, equities and gold.
Equities are relatively contained vs the multiple standard deviation sell of we've seen in rates and the spike in rates vol.
This is an unsustainable equilibrium, far more than any other indicator this needs to work for equities to work.
Watch 7yr auction later today.
Memory
Before getting dragged into a shouting match on Jevons paradox…I’m comfortable saying I don’t know. It may well be that efficiency simply expands demand.
But what is clear is that AI is compressing multiples across the complex…it's not just software its the hardware tool.
You need very high confidence that near-term EPS pays you back because terminal values are becoming increasingly uncertain.
The market is already reflecting that…don't believe me...XOM's forward multiple is greater than NVDA's!
Risk
Reflexivity still argues the U.S. wants off-ramps…rates, not equities, are the real pressure point.
My base case is we’re at the beginning of the end…both sides have broadly signaled their terms.
But it’s likely the end of the beginning…the early bounce trade has played out.
Near term feels like consolidation, with a better opportunity to add risk into weakness (potentially into Friday) as others cut exposure.
Into next week, after any further escalation, I’d expect renewed attempts at de-escalation.
The risk is I’m wrong and this turns into a more prolonged infrastructure shock…or conversely we get a surprise weekend breakthrough negotiations/delay and gap higher.
For now, neutral with a bias to buy dips given sentiment and positioning. Month end rebal should be net supportive for equities but its less obvious to me given bonds have sold off as well.
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