With so much uncertainty over Donald Trump’s economic policies it is very difficult to say what the impact on commodity prices will be. In the short-medium term the biggest positive impact is likely to be for precious metals, reflecting the uncertainty and the heightened geopolitical risk. Further ahead a Trump presidency could lead to lower energy prices as his insular agenda leads to support for domestic growth in energy supplies. Meanwhile, labour intensive agricultural supplies (that really excludes corn, wheat etc.) may be hit if anti-immigration policies lead to the loss of workers resulting in higher prices in the US.
The investment bank, Macquarie recently posted a note describing how the shifts in financial markets of all kinds are no longer based on fundamentals, but instead are driven by an over reliance on central bank intervention. The result is that, in Maquarie’s view this makes macroeconomic calls much more difficult to call.
The last several weeks witnessed one of the strongest reversals since the GFC. Following Brexit, the virtual implosion of the Italian banking sector and May poor payrolls, investors had to absorb a jump in Jun payroll and full panic mode by CBs, including: (a) flagged BoE easing; (b) a potential Japanese “helicopter drop”; (c) growing calls for public recapitalization of Euro banks; (d) easing by a plethora of countries; and (e) acceptance that Fed cannot tighten.
Since the UK voted for Brexit, prompting a sharp drop in the Pound, the Chinese yuan has fallen by 12% against the US dollar to 6.65 yuan per dollar – its lowest level since late 2010.
Last August a slump in the yuan to 6.6 to the US dollar sparked fears that the Chinese economy was in worse shape than investors believed. The move sent fresh shock waves through global markets, sending commodity prices further into reverse as traders feared the move could also ignite a currency war that would destabilise the world economy.