The U.S. economy could be heading for a recession in the next year

A “very, very high risk” of recession warned former Goldman Sachs chief executive

The U.S. economy could be heading for a recession in the next year, according to growing warnings from banks and economists, as a sudden bout of pessimism hammers financial markets, which on Thursday spiraled further from recent highs.

Although major swaths of the economy — including the job market and consumer spending — remain robust, there are mounting worries that rising borrowing costs for consumers and businesses, after years of near-zero interest rates, could cause a sudden retrenchment. The Federal Reserve has raised interest rates by 0.75 percentage points so far this year, while officials are signaling more aggressive increases could be necessary to cool the economy. Continued uncertainty from the coronavirus pandemic and Russia’s invasion of Ukraine are adding to the uneasiness.

Financial markets fell again on Thursday, a day after the Dow Jones industrial average suffered its worst drop of the year. The S&P 500 inched further into bear market territory — defined as a 20 percent drop from the most recent peak — after Wednesday’s sell-off wiped out more than 4 percent of its value.

Soaring European Energy Prices

Europe’s natural gas and electricity prices could rise even further

Record breaking natural gas and electricity prices in Europe could be the harbinger of increased volatility in global commodity markets, according to Goldman Sachs. “European energy pricing dynamics offer a glimpse of what is in store for other commodity markets, with widening deficits and depleting inventories leading to elevated price volatility,” the investment bank’s analysts wrote in a new report carried by Bloomberg.

Depleted natural gas inventories and low wind speeds have led to a surge in electricity prices across Europe, putting pressure on governments as consumers protest against soaring power bills ahead of the winter heating season. Electricity prices from the UK to Spain have jumped to all-time highs, people in Spain have taken to the streets, while prices across Europe so high could become a drag on the economic recovery from the pandemic.

According to Goldman Sachs, Europe’s natural gas and electricity prices could rise even further, considering that gas levels in inventories are at a ten-year low—and not filling fast enough—just ahead of the winter heating season that begins next month.

Goldman doubles down: Record-high copper price within a year

Bull market

Copper is trading more than $800 per tonne below the near-decade high hit in February, and some of the ardour of copper price bulls has cooled decidedly since then. Goldman Sachs metals strategist Nicholas Snowdon, speaking at the virtual World Copper Conference on Tuesday, is squarely in the bull camp, however.

Snowdon doubled down on the investment bank’s view that the mining sector is at the start of a supercycle, citing three factors driving the boom in the broader commodity market: Long-running structural underinvestment in the “old economy”,  including mining, infrastructure and industrial production, new redistribution policies ushered in by covid that target commodity-intensive social needs rather than financial stability and thirdly, a massive rise in government spending, particularly in the US.