Commodities and the US Election

All eyes are on this week's US presidential election as polling between the two candidates has narrowed substantially over the past few weeks. The uncertainty thrown up in the last few weeks has seen investors plunge into risk-off assets: ten-year USTs have rallied, JPY and CHF have both strengthened and in the commodities space gold has gained more than 4% since the middle of October and was last trading above USD 1,305/troy oz.

Historically, commodities have shown a scatter shot performance following US presidential elections. Oil futures have gained and fallen by wide and narrow levels and without regard for the party of the eventual winner. The same has held true across our admittedly narrow basket of representative commodities (oil, gold, copper and wheat). 

Commodities seem to be independent voters

Source: Emirates NBD Research. Bloomberg. Note: % return from election date to inauguration date.

Economic growth and recessions are by the far the more significant catalyst to commodity price movements. Following on the election of Barack Obama in 2008 until his inauguration in January 2009, WTI futures fell 45% but they were merely extending the more than 50% decline from their record July 2008 levels as the credit crunch transformed into the Global Financial Crisis.  

Secretary Clinton has a 'greener' policy agenda and is heavily favouring greater use of natural gas over coal and fuel oil and is targeting improvements in energy efficiency. Generally, we think a Clinton victory would extend the status-quo of President Obama's energy agenda but would have little immediate impact on oil market fundamentals.

Mr Trump has promoted the expansion of producing energy from shale assets, both oil and gas, and plans to declare 'energy dominance a strategic economic and foreign policy' objective. My Trump has also pledged that the US will become "totally independent" of OPEC. Whether this is achievable is less down to Mr Trump in our view and more down to oil prices. As oil production in the US has slumped imports from OPEC have risen but they are still at their lowest levels in around 25 years as imports from other suppliers—mainly Canada—and domestic output have expanded rapidly. But like Secretary Clinton's agenda, we see little near term impact on oil fundamentals from a Trump victory or early presidency.

Uncertainty ahead of the election and in its wake as a new President sets up a new economic team will be a catalyst for short-term price movements, including in oil, but fundamentals heavily outweigh politics in commodities markets. For oil, the 30th is a far more important date this November than this coming Tuesday.

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