We see no immediate material impact from the election on commodity supply and demand. In the near term, we expect a period of elevated volatility and the potential for risk aversion due to general uncertainty. We believe conditions over the intermediate to longer term should be generally supportive for commodities due to expected fiscal stimulus and stronger growth.
Possible negative developments include the potential for increased trade barriers with China and the possibility that the new administration may label China a currency manipulator. These factors would create a level of uncertainty for an economy that is a major consumer of commodities.
In terms of the longer-term impact to specific commodities, we believe the devil is in the details and will depend on the actual policy/legislation that is implemented. This could include measures related to energy independence, infrastructure spending and the renegotiation of trade agreements. In the near term, we anticipate weakness in emerging-market currencies could impact global commodity trade.
Natural Resource Equities
Inflationary environments are generally positive for natural resource equities. However, if hard lines are drawn against US trading partners, it could be negative over the medium term, especially if protectionist policies impact growth in emerging markets that are slowly recovering. We expect some heightened market volatility over the next several months as investors strive for clarity on new policies and legislation.