Will it be a “Trump bump” or “Trump dump” for commodities if the Republican nominee wins the US Presidential election?
In the event of a surprise win for Donald Trump this week trader’s say June’s Brexit vote will offer clues as to how commodity markets will move.
As a haven asset, gold is already seeing a slight Trump bump. Although the precious metal fell sharply at the start of October, as the polls have narrowed it has been creeping up. Since the start of the month, gold is has climbed more than 2 per cent, regaining the $1,300 a troy ounce level it first rose above this year after the Brexit vote.
In June, the yellow metal jumped 8 per cent immediately after the UK’s EU referendum, and for the three months to September averaged above $1,300.
For other commodities, the “risk off” trades after the Brexit vote meant sharp falls in most markets, but after a few weeks, individual fundamental supply and demand factors took over.
On the crude oil markets, the international benchmark Brent fell as much as 6.6 per cent immediately after the Brexit vote, only to fall further in the following weeks due to worries about excess supply. The oil price rose above $50 a barrel in August on hopes of an output agreement by producers and has fluctuated since on rising and waning expectations of some sort of an accord on production by Opec and non-Opec producers.
Traders say that as the outside non-establishment candidate, a Trump victory is likely to be bearish for oil, if only for the uncertainty it might engender across markets. But there are also industry experts who see fundamental reasons for a Trump victory to be a negative for oil prices in the longer term.
His platform calls for the unleashing of “$50tn in untapped shale, oil, and natural gas reserves” and eliminating the “moratorium on coal leasing, and open shale energy deposits”.
His pro-fossil fuel policies follow in the footsteps of the call to “drill, baby, drill” by senior Republicans in previous elections, says one senior commodity banker. But at the same time, Mr Trump’s opposition to free trade could slow the world economy and cut into demand for oil.
“It’s a double-whammy as he’s pro pipeline, pro North American oil production, but anti-trade,” the banker says.
For other commodities, Mr Trump’s protectionist rhetoric will cast a shadow on many raw material markets, even if he does not immediately implement anti-trade policies.
The US is the world’s largest importer of iron and steel products, while Mr Trump has proposed punitive tariffs on products from China and Mexico, which are leading destinations for US soyabeans and corn.
Short-term, all dollar-priced commodities will also be impacted by how the US currency performs, which affects how much they cost in for buyers in other currencies.
There could be knee-jerk weakness in the dollar in the event of a Trump win, but equally in times of uncertainty the dollar often quickly asserts itself as king, with money flowing out of riskier assets. That could include commodities.
The Commodities Note is an online commentary on the industry from the Financial Times
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