Goldman Sachs macro trader warns: Central banks around the world have missed the opportunity to stabilize the market, "energy is driving everything".

Goldman Sachs traders warn that energy prices have become the core variable driving all macro asset trends, following the attack on the world's largest LNG facility in Iran. The Federal Reserve, European Central Bank, and Bank of England's policy meetings this week not only failed to stabilize the market, but instead reinforced a hawkish stance on front-end rates' high sensitivity to energy prices. Goldman Sachs macro traders Cosimo Codacci-Pisanelli and Rikin Shah stated in their report that the attack on Qatar's Ras Laffan LNG facility by Iran caused an estimated 17% supply disruption over the next 3 to 5 years, equivalent to 4 to 5% of global LNG supply. Crude oil and European gas prices continued to rise sharply this week. The policy meetings of the three major central banks this week all revealed a hawkish response to energy inflation, further strengthening the linkage between front-end rates and commodity prices, rather than cooling down. The two traders warned that Iran currently holds the largest energy leverage over the global economy, and the possibility of a quick reopening of the Strait of Hormuz is very low. Energy prices still tend towards an upward trend. If energy pressures persist, the ECB and BOE could raise rates earlier than expected, and without significant fiscal responses, a sharp tightening of front-end rates pricing policy implies significant downside growth risks. Iran's attack reshapes the LNG supply landscape The trigger for this event was the attack on Qatar's Ras Laffan LNG facility by Iran. The facility accounts for approximately 20% of global LNG supply, and the production shutdown caused by the attack is expected to last 3 to 5 years, equivalent to 4 to 5% of total global LNG supply. Goldman Sachs traders believe that this attack reveals two key pieces of information: Iran's chosen escalation path and its leverage over the global economy by raising energy prices; and the long-term structural damage to the supply side from the conflict, with higher risks of insufficient gas reserves in Europe next winter the longer the conflict persists. The report points out that the longer the conflict lasts, the wider the upside distribution of energy prices, and even if eventually resolved, the time needed for normalization may be longer. The path to a quick reopening of the Strait of Hormuz currently appears very narrow, and the convexity of the energy complex still leans towards an upward trajectory. Central banks miss the opportunity to calm the market this week The three major central banks made appearances this week, but all failed to prevent further selling of front-end rates through policy communication, instead reinforcing market expectations for rate hikes due to energy inflation. Goldman Sachs traders believe that the "shadow of 2022" is becoming clearer, with central banks taking a hawkish stance in response to concerns about a return of inflation. The report concludes that the Fed, ECB, and BOE all failed to control the selling pressure on front-end rates, and the central banks' reaction function has become a new catalyst for the continued high beta correlation between energy and rates. The Bank of England was the most hawkish and surprising of the three major central banks this week. The Bank removed language indicating a dovish stance in its policy statement, replacing it with "prepared to act at any time," and mentioned the possibility of tightening policy in cases of "large-scale or prolonged impacts." Goldman Sachs traders expressed confusion over this move: "It is difficult to understand the Bank of England's logic of response in a context where the labor market is still clearly softening and the policy stance is already restrictive." As of the close of the market this week, pricing for rate hikes in the year had reached 88 basis points. The report suggests that, given the limited fiscal space in the UK, this pricing may be high, but in the face of such strong price actions, a certain humility is needed. The ECB retains policy options, but the path to rate hikes is clear ECB President Lagarde's statements this week were described by Goldman Sachs traders as "steady and balanced," retaining all options on the table. The most notable aspect of this meeting is that the forecast report shows that the transmission effect of energy shocks to core inflation is higher than previously expected, indicating rising risks of second-round effects. The ECB set benchmark, adverse, and extreme scenarios in its forecasts. Goldman Sachs estimates that these scenarios correspond to rate hikes of 25 basis points, 50 to 75 basis points, and 100 to 150 basis points respectively. The report further estimates that the adverse scenario corresponds to market prices of oil at $119 per barrel and natural gas at 87 per megawatt-hour, still slightly higher than current market levels. Goldman Sachs believes that based on scenario analysis, a 50 basis point rate hike "feels reasonable," and current market pricing has already exceeded this level. Hawkish members stated after the meeting that if the situation in the Middle East cannot be quickly resolved, they will push for prompt action. Fed: Relatively high threshold for rate hikes The outcome of this week's Fed meeting showed that only one member leaned towards a rate cut (Goldman Sachs had previously expected three). Powell noted that the unemployment rate is roughly stable, with near-zero net job creation in the private sector, possibly at a breakeven level; inflation and employment risks are treated equally, and the impact of oil price shocks on inflation expectations is taken seriously against a backdrop of high inflation over five years, with "modestly restrictive" policy currently deemed appropriate. Pricing of rate cuts in the US for 2026 was fully absorbed this week, aligning with other developed markets. Goldman Sachs holds a neutral position on the current level of US front-end rates. The report also points out that under the leadership of the new Fed Chair Warsh, the threshold for rate hikes in the US remains higher than in other countries. In this crisis, US stocks have unexpectedly shown resilience, but if a larger correction occurs, attention may shift towards growth concerns, with the Fed potentially being the first central bank to react - benefiting from its relatively low exposure to energy and dual mandate. Fiscal response is the core variable As rate hike pricing accelerates in Europe and the UK, the yield curve begins a significant flattening, and the market has already begun pricing in a slowdown in forward growth. However, Goldman Sachs traders emphasize that the ultimate direction of growth depends largely on whether there is a fiscal response. For example, in the UK, the Spring Budget update earlier this month showed a fiscal space of only 23.6 billion until the fiscal year 2029/30. Goldman Sachs rough estimate suggests that the trends in interest rates and inflation have already narrowed the fiscal space by about 12 billion, leaving very limited remaining space. In comparison, the UK government's spending on energy price support from 2022 to 2023 is estimated to be around 60 billion. The report suggests that without significant fiscal support, the implied path of policy tightening in the current market would imply significant downside growth risks, and the trend of curve flattening is expected to continue. More broadly, financial conditions are tightening across the board, with the UK seeing the most aggressive tightening, followed by the US. Goldman Sachs traders maintain their core judgment in conclusion: the convexity of energy prices still tends towards an upward trend, and the longer the conflict persists, the stronger the enduring damage to supply, the wider the upside distribution. This article is from "Wall Street Seen and Heard", authored by Xu Chao, GMTEight, edited by Li Cheng.