Overview

Goldman Sachs highlighted that macro‑economic risks are rising as oil price volatility intensifies. The bank noted that markets remained rangebound last week despite a 30% surge in oil prices over the preceding three weeks, followed by a sharp decline on Monday after the United States and Iran paused hostilities.

Central Bank Actions

The European Central Bank kept its policy rate unchanged at 2.25%, but Goldman Sachs said higher energy prices combined with strong activity data increase the likelihood of a rate hike in September. The article also flagged upcoming policy decisions from the Federal Reserve, the Bank of England and the Bank of Japan, marking the busiest week of earnings season in the United States and Europe.

Upcoming Economic Releases

Key U.S. releases slated for Thursday include second‑quarter GDP and core PCE data, both scheduled after the Federal Open Market Committee (FOMC) meeting.

Investor Focus Shift

Goldman Sachs observed that investor attention has moved from company‑specific risks to broader economic concerns, with elevated oil prices heightening inflationary pressures and the risk of further rate increases. U.S. two‑year Treasury yields are near their year‑to‑date high and sit well above breakeven inflation levels.

Rate‑Hike Probabilities

Option‑implied probabilities for rate hikes by the Fed, ECB and Bank of England over the next 12 months have shifted in a more hawkish direction. The rates team estimated that, if current pricing for the July FOMC meeting holds, it would represent the largest non‑cut surprise in recent decades.

Asset Allocation Stance

Goldman Sachs maintains a neutral position for the next three months in its asset allocation framework, while being modestly pro‑risk over a 12‑month horizon.

Credit Outlook

The bank remains underweight on credit for the next 12 months, arguing that credit spreads offer limited compensation given rising default risks. Credit strategists raised year‑end default forecasts to 4% for the United States and 5% for Europe.

Fed Forecast

Goldman Sachs economists’ probability‑weighted forecast for the Fed remains more dovish than market pricing, assigning a 35% probability to a rate hike at the July meeting and expecting the Fed to stay on hold through the end of the year.

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