Less oil 🛢️ = higher prices? 📈

Are house prices about to drop? Is a strong U.S. dollar good news for everyone? What's happening to the labor market? --------------------------------------------------------------- Are house prices about to drop? Is a strong U.S. dollar good news for everyone? What's happening to the labor market? We take a closer look below. We also examine what OPEC+ cutting production might mean for the oil market. (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- OPEC+ cuts oil output The intergovernmental organization agreed this week to cut output by 2 million barrels of oil per day. As some members of the cartel are already producing below their targets, Goldman Sachs Research estimates the reductions are effectively a cut of 1.2 million barrels per day (as compared with their previous expectations for November output). Our analysts raised their oil price forecast by $10 per barrel to $110 for the last three months of the year and to $115 for the first quarter of 2023. “Price risks are skewed potentially even higher,” says Damien Courvalin, head of energy research in Goldman Sachs Research. [Read more of our research on the OPEC+ decision here.]( --------------------------------------------------------------- A strong dollar: A blessing or curse? Global currencies, from the British pound and the Japanese yen to the Chinese yuan, are plunging against the U.S. dollar, which is surging to new highs. And it could strengthen more, according to Kamakshya Trivedi, head of Global Foreign Exchange, Interest Rights and Emerging Markets Strategy Research, in the [latest episode of Exchanges at Goldman Sachs]( with Allison Nathan. - Trivedi's central case is for the greenback to rally by a couple of percent in the coming months. “But in a more hawkish scenario — where U.S. inflation is more entrenched and the Fed needs to move further and keep rates higher for longer than envisioned — I think you could see another 5% to 7% appreciation on the broad dollar," he says. - While a stronger dollar results in cheaper imports for Americans, it also creates problems for other countries. “They have a somewhat unhelpful dilemma,” Trivedi says. “Either they accept a much faster depreciating currency. Or they need to move rates up fast enough to either keep pace with the Fed, or even outpace the Fed, which may not be appropriate for their local economic conditions,” he says. - Central bank currency interventions are on the rise. “Intervention is one way for other countries to try to improve the terms of the trade-off…between tightening policy and accepting a weaker currency that worsens inflation,” Trivedi says. “It wouldn't surprise me if we saw more of that as dollar appreciation pressures persist.” Subscribe wherever you get your podcasts [SpotifyÂ]( | [AppleÂ]( | [Google]( | [Stitcher]( --------------------------------------------------------------- Why house prices could fall Housing is already cooling in the U.S., according to July data that was reported last week. The world's largest economy isn't alone: Home prices are expected to decline in all G-10 countries, according to the G-10 home price model of Goldman Sachs Research economists Daan Struyven and Yulia Zhestkova. As interest rates climb, the model suggests home prices will decline by around 5% to 10% from the peak in the U.S., 15% in Canada and a little less than 5% in the U.K. (This is based on nominal data that doesn't account for inflation; the drop is expected to be even larger in inflation-adjusted terms.) While the drop in home prices may seem large, those declines are expected to only partly offset the price jump that happened in several markets after February 2020. U.S. house prices, for example, soared 42%, without inflation adjustment. But there are reasons to think the declines in many parts of the world could be substantial: The housing market has already fallen 7% in Canada and Sweden in just six months. A slowdown in the housing market could be cushioned by a relative lack of available homes in the U.S., Canada and U.K., and by strong household finances. But Britain may be less insulated from a spike in rates than some nations: The interest rates for nearly all U.K. mortgages reset within five years of origination, and around 40% of them are expected to have rate increases by July 2023, according to a Bank of England estimate. [Learn more about the potential decline in house prices.Â]( --------------------------------------------------------------- Labor shortages in the US are easing Job openings in the U.S. fell by 1.1 million in August, a bigger drop than economists expected. That's a sign labor shortages, a key driver of wage growth and inflation, could be abating. The [jobs-workers gap]( — which is the difference between the total number of jobs (in other words, employment plus job openings) and the total number of workers — has now narrowed substantially, according to Goldman Sachs Research. Our economists say the gap has shrunk by about 50% of what's needed to rebalance supply and demand in the job market. --------------------------------------------------------------- Market gyrations are the annuity industry's focus Financial market volatility is the biggest investment risk for annuity professionals, according to[Goldman Sachs Asset Management's 2022 Annuity Industry Survey](. That risk was ranked ahead of concerns about a U.S. recession as well as swelling inflation, based on a survey of 26 insurance companies representing over $1.1 trillion in variable annuity net assets. [Read the full results.]( --------------------------------------------------------------- Alli Webb's blowout success story If you still don't know what a blowout is, now you don't have an excuse. In a[ recent episode of Talks at GS]( Alli Webb, the founder of Drybar, a hair salon franchise that specializes in blowouts, discusses the rewards and challenges that came with the explosive growth of her business. Above (L to R): Alison Mass of Goldman Sachs and the founder of Drybar, Alli Webb. - Making her mark with blowouts: “I'm pretty sure all the women know what a blowout is,” Webb says. “The way I always explain it to men is, like, when your wife goes to the hair salon and she gets her hair cut or colored and then they blow it out, she comes home. She's got this extra confidence. Her hair looks amazing and feels amazing. You know, it's really styling your hair.” - Drybar's success started with blowouts but developed into an extensive product offering: “We started with the blow dryers and the curling irons...It just quickly took off because people wanted to buy a piece of Drybar.”  - What are Webb's keys to entrepreneurial success? Strong customer service, branding and passion. “The problems aren't going to stop coming… It's more how you deal with them.” To find out more about Webb's journey since selling Drybar and becoming the President of Canopy, [watch the full interview.]( --------------------------------------------------------------- Briefings brainteaser: Which currencies pay top dollar? The value of U.S. dollar is the strongest it has been in decades, gaining against most currencies around the world. Which two currencies are still stronger relative to the dollar year to date? A) The Brazilian real & Mexican peso B) The Hungarian forint & South Korean won C) The Polish złoty & Swedish krona D) The Israeli shekel & South African rand [Check the answer here.]( --------------------------------------------------------------- ICYMI: In the media [BloombergÂ]( October 6 [Goldman Sachs is bullish on oil]( (5:06) [Bloomberg](  October 4 [Fed won't be pivoting anytime soon: Goldman's Kostin]( (7:54) [CNBCÂ]( September 30 '[Big paradigm shift' in real yields: Goldman Sachs (3:04)Â]( --------------------------------------------------------------- --------------------------------------------------------------- Some of the images used in this newsletter are sourced via Getty Images. The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. 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