Such is the furore around the US election that what is normally a 'Tier 1' event, an FOMC rate decision, has all but been lost. Frankly, there were no great surprises as the FED kept in line with expectation to cut by 25-basis points, and with it an easy path of another such reduction in December being paved. Yet the intrigue comes from how the FED might view the new administration, because of possible deportations and tariffs which are inflation builders, and set out any adjustment to future policy. Jerome Powell, the FED Chair, remained non-committal in his after-meeting press conference. Implying that there would be no immediate near-term impact on monetary policy but as is with his normal staple, the stoic banker spoke on the steady employment and inflation and how the process of change in market conditions will take time to register in its data. In other words, the US Federal Reserve, as with the rest of the world, has no clue what a Donald Trump administration holds for the economies of the US and indeed, the world. 

The reverberation from the US is a continuing process and at present the waves lapping at the shores of the major economic centres will experience days of disruptive ripples for some time. Still, the US investor expects tax cuts and fiscal spending, and their stock markets react in kind. Hopes for stimulus or at least a hurrying of interest rate cuts elsewhere might see something of substance in reaction to what might transpire from Washington. Europe is defensive anyway because of the political situation in Germany, therefore the ECB can ill-afford to dawdle in rate reduction. As for China, its markets swing a little this morning, again in expectation of what wires dub 'bazooka' stimulus from the Standing Committee of the NPC being nudged along by events in the US. A news conference is scheduled at 08.00 GMT.

As for our market, it sits island-like, defensively firm on a 'Trump Trade', a hurricane, and expectation of something even more unsavoury from Israel and Iran. The move higher might have seen more of a positive week if it were not for the soaring US Dollar, and that investment tourists, as has been the case so often of late, can find better homes for monies elsewhere.

The new President and the New Year. It will not be boring.

No matter how one tries, there is no getting away from the influence or at least the perceived influence of one certain Donald J. Trump. The president-elect comes with more personal baggage than a jumbo jet, and so it is with expectation on how the mercurial old/new White House resident will stand on geopolitical matters. There is little to detract from theorisation on how Trump 2.0 might implement Trade War 2.0. Playing into the hands that a rubber stamping of tariffs will ensue after the inauguration of January 20, 2025, is the sudden ramping of Chinese exports in October. Expectation of a 5% increase were blown away as the National Bureau of Statistics revealed an increase of outgoing goods of 12.7%. It has been long suspected that China would ‘front load’ exports in anticipation of a restrictive new regime in Washington, and there is little to suggest that this data does not adhere to such. The importance of China’s trade with the US cannot be understated and within October’s trade numbers it emerges that exports to the US during the month increased by 8.1%. With recent estimates in value of $400 billion for China’s goods supplied to the US, that figure might just be closer to $500 billion, therefore a 60% tariff will cause extraordinary harm to China’s one-trick-pony of manufacturing and exporting its way beyond economical trouble. Indeed, economists estimate that such stringent barriers would cost China 2-points value in GDP and require massive stimulus to the tune of many hundreds of billions of dollars to offset.

Europe is unlikely to be spared The Donald’s swing of the trade axe. Foregrounding a 10 to 20% tariff on ‘all other imports’ during the presidential campaign, the leaders of the European Union must be scrambling to counter the effects of a targeting of Atlantic trade. Emmanuel Macron scampered to a posting on ‘X’, and after conferring with Germany’s Chancellor Olaf Scholz, said, “We will work towards a more united, stronger, more sovereign Europe in this new context. By cooperating with the United States of America and defending our interests and our values.” Placatory words for deaf ears, maybe. Trump’s consternation with Europe stems from its inability to guard its own security and the underspend by nearly all, with regard to NATO. Trump’s surprising of the pollsters and press of the United States in victory has also caught the EU off guard. The Union has been lackadaisical in addressing leftover trade issues in green subsidies for EV manufacture, and other disputes that involve commodities such as the metals of aluminium and steel. Joe Biden took a much more laissez faire attitude when dealing with Europe over trade by allowing a temporary suspension of possible tariffs, but the new regime may not show such benevolence. Earlier in the year, the EU drew up a retaliatory plan that seemed to take aim at Donald Trump’s voter base, by targeting bourbon industries, Harley Davidson and power boats. Such a move can only antagonize the situation even more, for the property magnate turned politician will only personalise such a see-through strategy and scream on how global elites are trying to do harm to ordinary US workers.

As for the oil industry, the headline of “drill, baby drill” remains the entry point at where the new President will place himself. Deregulation and encouragement for producers offers a future of much more US crude slopping around the globe, incidentally, made so much easier by Midland’s leading role in the North Sea basket. However, the situation is not so clear cut. In August there was something of vow in which the SPR would be refilled and not used as political football, this despite under his previous presidency Congress set itself on a path to reduce the size of SPR to 400 million barrels. Current SPR, after a program of buying from the Biden administration, stands at not much less then this number. To fill it totally would see the storage caverns gobble another 300 million barrels, which would be some buying spree. The other curio is how hard the tariff/sanction hammer comes down upon Venezuela and Iran. With the South American country’s exports in the region of 400kbpd and the Islamic State’s at 1.5mbpd, interruption to such an amount of flow will only have one effect.

But oil prices will be lumped in with the trade health of the world. A US inspired global trade war eats into demand for all produce, let alone oil. In the short-term, oil prices might rise if the new President Trump is quick on the draw with oil sanctions on the countries mentioned. Yet, any lasting upward pressure must be calmed and turned along with the medium to long-term influence of a disrupted, further deglobalizing trade environment. Postulation on all the above is a worthy exercise. However, the ’Trump effect’ will come in many stages and guises. Each phase will have to be dealt with as and when announced. We await with expectation, our ‘Twitter’ accounts updated to ‘X’ as Elon Musk smiles all the way to the bank.
 

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