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Donald Trump inauguration: what next for global economy?

 

Republican presidential nominee Donald Trump looks at a mask of himself as he speaks during a campaign rally in Sarasota
Photographer: Carlo Allegri

As Donald Trump takes office to become the 45th president after the pageantry and protests of his inauguration ceremony — what now for the U.S. and global economies and for commodities and financial markets in particular?

Will Trumponomics prove the right medicine for the U.S. economy and what will be the global consequences of his pledge to put “America First” — described by some as isolationist and protectionist?

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Thomson Reuters Eikon news feed — Donald Trump inauguration

Thomson Reuters Inside Financial & Risk has analyzed the implications of the Trump election victory for a broad range of sectors, including the possible impact on metals prices from so-called #Trumpflation.

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In addition, Thomson Reuters Eikon was at Davos 2017 as world leaders considered the lessons of Brexit and the Trump election and, in particular, how to build a dynamic and inclusive system to help manage the effects of globalization. Here are some of the highlights of our coverage:

Trumpflation trade

Commodities traders have already felt the tail-winds from Trump’s election victory. While China helped buttress metals prices for a good part of 2016, there was no mistaking the late impact on markets from the Trump poll result.

As Ling Wong explained in our commodities 2017 preview, base metals traders were particularly excited by the prospect of the Trumpflation trade.

A supporter listens to U.S. Republican presidential candidate Donald Trump in La Crosse
Photographer: Kamil Krzaczynski

The bet on fiscal stimulus, a faster rate of inflation and a more hawkish stance by the Federal Reserve System has been a key theme benefiting the dollar, U.S. equities and industrial commodities.

Thomson Reuters Eikon Social Media Monitor — Donald Trump inauguration
Thomson Reuters Eikon Social Media Monitor — Donald Trump inauguration

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Not all sectors have benefited though, with precious metals capitulating on the back of expectations of more aggressive rate rises.

Will the trends continue or will ongoing political uncertainty, the Great Rotation of asset allocation or China’s performance overshadow the Trump effect?

Consumer spending boost?

Trump’s policies on wages and trade agreements were analyzed by our GFMS metals team for clues on how commodities demand might be impacted.

With Trump favoring a 38% rise in the federal minimum wage to US$10 dollars an hour, there’s more chance of higher spending among low income households.

So will demand for aluminum used in the packaging of soft drinks increase? And will there be a boom in purchases of consumer electronics to the benefit of the usage of copper wiring.

Thomson Reuters Eikon combined news and video screen — Donald Trump inauguration
Thomson Reuters Eikon combined news and video screen — Donald Trump inauguration

Track the Trump inauguration using Thomson Reuters Eikon

Meanwhile, Trump has vowed to leave the Trans-Pacific Partnership (TPP).

TPP is a proposed trade agreement among 12 Pacific Rim countries that aims to reduce trade barriers.

U.S. trade in Precious Metals was worth $80 billion in 2015, but the GFMS metals team doesn’t expect a material impact from the blow to TPP.

Supporters of Republican presidential candidate Donald Trump rally in front of the White House in Washington.
Photographer: Joshua Roberts

Climate change impact

Will Trump’s presidency also mean America’s commitment to the 2015 Paris climate change agreement goes the same way as the TPP?

Trump is a climate change skeptic and has publically stated that he would pull the U.S. out of the Paris agreement, citing his view that other countries would not keep their targets.

A supporter of coal, Trump has promised to dismantle the Clean Power Plan (CPP), which aims to reduce U.S. power plants’ reliance on coal.

CPP was part of Barack Obama’s Climate Action Plan and was expected to contribute about six percent of emission reductions by 2025 against 2005 levels.

What now for the U.S. target to reduce emissions by 26-28% from 2005 levels by 2025?

Supply chain workload

Trump’s election will mean a further increase in the workload of corporate treasurers, who play an invaluable role in managing risk in the supply chain.

Diverse factors such as climate change, raw material prices, forex movements and modern slavery already present daily challenges.

Added to this, there’s the added element of event risk as markets react to global developments in real-time. A prime example of this has been Brexit and its effect on exchange rates.

Thomson Reuters Eikon Reuters Insider — Donald Trump inauguration
Thomson Reuters Eikon Reuters Insider — Donald Trump inauguration

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Now with Trump promising to build a border wall and tear up America’s role in the TPP, they are likely to face many more challenges in 2017.

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