As the United States’ President-elect prepares to move into his new address on 1600 Pennsylvania Avenue, the Trump presidency promises volatility and a mixed bag of economic policies which will diminish the US position of international leadership. As the world conducts its own business, less US-driven focus on the GCC region will have a positive impact on market commodities.
Trump may have succeeded at winning the US election with his populist campaign and big promises but as he readies to move in to the White House, it’s time to remind everyone that policy matters and success isn’t entirely about psychology.
Trump’s policy mix has some growth-supportive elements and some negatives. From an economics perspective, it’s net-negative and the US’ new foreign policy will be random and opportunistic, ultimately leading to another drawback from the country’s position of international leadership.
With Trump being 100 per cent domestically driven in his focus, in a manner similar to his hero, former president Richard Nixon, his presidency will represent the final part of the cycle that started either with Nixon taking the US off the gold standard in 1971, or with Reagan introducing supply-side economics and reintroducing laissez-faire policies in 1981 followed by the 30- year nightmare of more central bank intervention and less freely traded markets.
The focus of Trump’s US Trade policy on reducing trade deficits means the GCC could receive less focus as Trump leaves China and the rest of the world to doing more business. While increasing geopolitical risk and a 60 per cent chance of recession in the US will lower growth and demand, commodities will do well overall.
A weaker US dollar as a stated policy is net positive for commodities by making demand higher through a lower price, so an outperformance of gold and silver into an environment with expected higher inflation is likely, and oil trading will be in the 40/60 range.
I firmly agree with the view of my colleague Ole Hansen, Head of Commodities Strategy: “The Trump presidency will be at best chaotic and experimental. At worst, it will provide a 21st Century mirror of Nixon’s few years in office, where the US first disengaged from being the world’s policeman. This will mean less support for the GCC model due to repeated import barriers, a weak US dollar policy and a bashing of the Federal Reserve- but this climate will not have a net negative impact on commodities.”
Change is good and 2017 – 2020 will be a period in which the world moves forward by fully experiencing those things we do not want.