Will OPEC turn on the taps? 🛢️

- Also: It was International Women's Day this week and we are celebrating the trailblazing women making an impact across Goldman Sachs every day. --------------------------------------------------------------- In today's edition: - Our economists examine why job openings are still well above pre-pandemic levels in many countries. - Marc Rowan, the CEO of Apollo Global Management, [offers some advice for investing in alternatives.]( - And how much higher can bond yields go? (Was this newsletter forwarded to you? [Sign up now.]( --------------------------------------------------------------- The job market is slowly coming back to Earth Job openings surged around the world in 2021 and 2022 as economies reopened and employers rushed to hang up help wanted signs. Goldman Sachs economists were among those predicting that job openings would normalize as temporary distortions in the labor market resolved. Our economists also expected that a period of below-trend growth would probably be required to convince companies to post fewer openings. “Cross-country patterns confirm that these dynamics are playing out as expected,” Goldman Sachs economists Joseph Briggs and Devesh Kodnani wrote in a report. They note that most developed markets have seen job openings as a share of their labor force retreat from their pandemic-era highs. This is particularly the case in countries that overshot their pre-pandemic levels to a greater degree. They say it's also happening at a greater rate in countries where growth has undershot its potential: Each 1% reduction in GDP lowers the job openings rate by 0.3 percentage points. But job openings are still elevated in many developed market economies, led by the U.S. and Australia. More than a dozen countries have a job openings rate that is higher than before the onset of the pandemic. “We have probably not seen the job opening normalization process fully play out in most countries, and some further ‘natural' normalization in job openings will likely occur,” Briggs and Kodnani write. But given that it's been well over a year since those job openings rates topped out, it's likely going to take a sustained period of below-trend growth to reduce them to a sustainable level. In the meantime, a lot is riding on the normalization of job openings across the globe. “While they have partially normalized in recent months, a continued reduction is probably necessary in many countries to improve labor market balance and [lower wage growth]( price inflation,” the authors write. --------------------------------------------------------------- Oil prices could hit $107 by year's end — if OPEC stands firm Oil prices could rise as high as $107 a barrel by the end of the year from about $80 at present, depending on how OPEC responds to emerging market conditions, [according to a new report from Goldman Sachs Research.]( At the end of 2022, OPEC announced a two-million-barrels-a-day cut in production in response to slowing global growth and heightened risks of recession. However, increased demand from China combined with little increase in non-OPEC production this year will likely lead OPEC to reverse its strategy at its June meeting and increase production by one million barrels a day, GS Research predicts. That would result in prices for Brent crude hovering at about $90 a barrel in the second quarter, before rising gradually to $100 by year's end. That forecast could prove too conservative if OPEC leaves its current production levels in place after its June meeting and output from non-OPEC producers remains unchanged. Goldman Sachs' Senior Energy Economist Daan Struyven writes that three developments suggest OPEC may keep production flat in the second half of the year or ramp up gradually. - Several OPEC leaders, including Saudi Energy Minister Prince Abdulaziz bin Salman, have indicated the producer group may keep current production limits in place. “The agreement that we struck in October is here to stay for the rest of the year, period,” he said in mid-February. - GS Research reduced its price forecast for Brent crude in the second quarter, reflecting production beats in the U.S. and Russia, a warm winter and a decline in power plants switching from gas to oil. - History suggests OPEC will stay firm. While the producer group historically opens the taps when U.S. demand surges, it rarely adjusts production for demand growth from China, according to GS Research. [Learn more about our forecasts for oil in 2023 here.]( --------------------------------------------------------------- Forecast change: Following Powell's testimony, expect a higher terminal rate This week, Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates higher than it previously expected and would be “prepared to increase the pace of rate hikes” if the data suggest a faster pace is warranted. Our economists raised their forecast of the peak fed funds rate by 25 basis points to 5.5-5.75%, adding a 25 basis points hike in July. Goldman Sachs Research expects the data ahead of the Fed meeting in March to be mixed but firm, with some risk that the Federal Open Market Committee could hike by 50 instead of 25 basis points. Regardless of the decision during that policy meeting, our economists expect the median from the so-called Fed dot plot to rise by 50 basis points in March, raising the terminal rate to 5.5-5.75% in 2023. --------------------------------------------------------------- Marc Rowan: Alternatives will have higher returns than public markets Marc Rowan, the CEO and co-founder of Apollo Global Management — one of the largest alternative investment managers in the world ­— recently shared his views on the growth and role of alternative investments in a recent installment of the [Exchanges at Goldman Sachs: Great Investors podcast series.]( In a conversation with Goldman Sachs' Alison Mass, chairman of Investment Banking, Rowan explains how investors should step away from publicly traded markets if they want to generate alpha or active returns on their investments. “Most people are way too liquid,” says Rowan, who sees alternative investments as “nothing other than an alternative to publicly traded stocks and bonds.” In fact, [Rowan believes that alternative investments could make up as much as 50% of investors' portfolios.]( “For a portion of everyone's portfolio at every point in the risk/reward spectrum, to the extent they can obtain hundreds of basis points of excess return per unit of risk for giving up liquidity, that's going to be a very powerful trade for individuals.” Goldman Sachs' Alison Mass and Marc Rowan of Apollo Global Management Rowan also appeared at a [live Talks at GS event at Goldman Sachs headquarters]( where he gave some advice to aspiring business leaders: “If the organization does not have momentum, everything that's in front of them that causes difficulty is an obstacle to success,” he said. “Ultimately the CEO is responsible for that momentum or lack thereof.” Rowan also discussed how he is building a strong culture at Apollo. “We try to encourage intellectual insubordination,” he says. “Being able to question without regard to seniority, without regard to anything, I think's just one of the healthiest things we possibly can have.” --------------------------------------------------------------- How much higher can bond yields go? Interest rates have somewhat further to climb and are likely to stay at higher levels for longer, says Rick Rieder, chief investment officer of Global Fixed Income at BlackRock, and Praveen Korapaty, chief interest rates strategist in Goldman Sachs Research, in the [latest episode of Exchanges at Goldman Sachs](. The U.S.: “Rates are getting close to the top of the mountain, and we're going to sit at the top for a long time,” Rieder says. “Interest rates will stay high for a period of time. And, by the way, which I think means it'll be a good year for fixed income.” Europe: The European Central Bank is looking more hawkish on the back of stronger inflation and growth data. “We know there are two camps in the ECB,” Korapaty says. “One camp that does want to go all the way to 4% or perhaps more, but there's another camp that is worried about…the periphery and therefore are reluctant to do so. How that will get resolved really depends on how data resolves itself.” Japan: Japan could be a major source of bond market volatility this year with a new incoming BoJ governor who could tighten monetary policy. Rieder, however, says a few factors lessen the risk of further surprises. “The Bank of Japan has shown a willingness to be deliberate in how they end or modify [yield curve control]( Rieder says. “My sense is that at this point it'll create some ripples, but it probably won't create a crisis.” [Listen to podcast]( & [read the Top of Mind report: (Japanese) Bonds, Bonds, Bonds]( --------------------------------------------------------------- US federal government could do more in supporting women-owned business, survey says 99% of female entrepreneurs think the U.S. federal government is falling short in its efforts to support women-owned small businesses, [according to a survey by Goldman Sachs' 10,000 Small Businesses Voices program.]( As part of Women's History Month, the survey collected responses from nearly 900 women who own small businesses across the U.S. Here are some of the key takeaways: - 89% of respondents say the playing field for female small businesses is not level compared to male-owned businesses. - As many as 72% of respondents graded the U.S. federal government a “C” or below in effectiveness for its programs, services and resources. - Shaniece Bennett, a founder of Accutrak Consulting and Accounting Services and a member of the Goldman Sachs 10,000 Small Businesses Voices community, says: “As we celebrate Women's History Month, there's no better time to shine a light on the unique challenges faced by female small business owners and the many ways we can continue to grow our businesses. A good place to start is by ensuring the programs offered by the federal government are accessible and working.” It was International Women's Day this week and we're celebrating the trailblazing women globally who make an impact across Goldman Sachs every day. Meet our colleagues who share their career, life and leadership advice from New York and London. [Watch here.]( --------------------------------------------------------------- Briefings brainteaser: US yield curve hits its deepest inversion since … This week, the U.S. yield curve reached its most inverted level in years. This closely watched measure — the gap in yields between two- and 10-year Treasury bonds — is often seen as an indicator of the likelihood of recession. When was the last time the yield curve was this inverted? A) 1976 B) 1981 C) 2001 D) 2007 [Check your answer here.]( --------------------------------------------------------------- ICYMI: In the media [Axios]( March 8 [The Women Entrepreneurs Opportunity Facility passes target of helping 100,000 women entrepreneurs]( [Bloomberg]( March 7 [Goldman's Solomon is more confident the Fed can avoid a deep recession]( [Bloomberg]( March 6 [Goldman Sachs still optimistic on China's near-term growth]( (3:18) --------------------------------------------------------------- --------------------------------------------------------------- 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. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. To the extent this newsletter includes material from Goldman Sachs Global Banking & Markets, please [click here]( for information relating to Goldman Sachs Global Banking & Markets material and your reliance on it. The Investment Strategy Group, part of the Asset & Wealth Management business (“AWM”) of GS, focuses on asset allocation strategy formation and market analysis for GS Wealth Management. 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