Global commodity markets react to Trump victory

Commodities from grains, to oil and gas dropped on Wednesday morning as the U.S. dollar rallied and victory for Republican Donald Trump in the U.S. presidential election stoked concerns about tariffs and economic growth.

Trump recaptured the White House by securing more than the 270 Electoral College votes needed to win the presidency.

In agricultural markets, soybean futures traded lower. Wheat and corn were seen as less exposed to renewed trade tensions with China.

A stronger dollar makes U.S. grain more expensive overseas, while tariffs proposed by Trump could disrupt U.S. agricultural trade, with soybeans particularly reliant on sales to leading importer China.

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There are also fears that China could respond with retaliatory measures, potentially reducing U.S. exports of key crops and creating downward pressure on prices.

Oil prices fell by more than one per cent on pressure from the U.S. dollar rally, which was set for its biggest one-day rise since March 2023 against major peers.

Investors believe Trump’s presidency will bolster the dollar as interest rates may need to remain high to combat inflation that would stem from new tariffs.

A stronger U.S. dollar makes greenback-denominated commodities such as oil more expensive for holders of other currencies.

Commodity prices started to fall overnight as traders started to price in the likelihood of a Trump win.

“This scenario is expected to bring about the promised tariffs on imported goods, particularly targeting China, potentially triggering a new wave of trade tensions and economic disruptions,” Hansen added.

However, Trump could renew sanctions on Iran and Venezuela, removing oil barrels from the market, which would be bullish, said UBS analyst Giovanni Staunovo. Iran exports about 1.3 million barrels per day.

Benchmark European gas prices also fell by nearly three per cent amid concerns about gas supplies and Trump’s stance on the Middle East conflict and Russia-Ukraine war.

Shares in European clean energy companies also fell as Trump has vowed to scrap offshore wind projects through an executive order on his first day in office.

Reverberations expected through global economy

Trump’s victory is expected to have deep and immediate economic consequences for the rest of the world. He has pledged everything from higher trade tariffs to deregulation, more oil drilling and more demands on America’s NATO partners.

His Republican Party also secured the Senate and may even win the House of Representatives, which would make it easier for the president to legislate his proposals and push through key appointments.

“Trump’s fiscal pledges are seriously troublesome – for the U.S. economy and for global financial markets – as they promise to vastly expand an already excessive deficit at the same time as he threatens to undermine key institutions,” Erik Nielsen, UniCredit’s Group Chief Economics Advisor, said.

“One must conclude that Trump poses a serious – and so far vastly under-appreciated – threat to the U.S. Treasury market and thereby to global financial stability,” Nielsen said.

Import duties, including a 10 per cent universal tariff on imports from all foreign countries and a 60 per cent tariff on imports from China, are a key plank of Trump’s policies and likely to have the biggest global impact.

Tariffs inhibit global trade, lower growth for exporters, and weigh on public finances for all parties involved. They are likely to raise inflation in the United States, forcing the U.S. Federal Reserve to act with tighter monetary policy.

The International Monetary Fund has already characterized global growth as weak, with most nations producing “feeble” expansion. A further hit to global trade is likely to present a downside risk to its 3.2 per cent GDP growth projection for next year.

Firms mostly pass import costs onto the customer, so tariffs are likely to be inflationary for U.S. buyers, forcing the Fed to keep interest rates high for longer or to even reverse course and hike borrowing costs once again.

This will be even more likely if Trump keeps his spending and tax pledges, which could increase the U.S. debt by $7.75 trillion through 2035, according to the non-partisan Committee for a Responsible Federal Budget.

“Most damage would be done under a universal import tariff,” ABN Amro’s Rogier Quaedvlieg said. “If the ultimate implementation is non-universal, the hit to the global economy would be significantly weaker.

“The full Trump package, including a universal package, would likely hit the global economy hard.”

—Reporting for Reuters by Naveen Thukral, Nina Chestney, Emily Chow, Daksh Grover, Ashitha Shivaprasad, Amy Lv and Balazs Koranyi