(Bloomberg) -- Commodities broadly declined on prospects that a stronger dollar and potential trade disputes under a Donald Trump presidency will weaken the appeal of raw materials in global markets.
West Texas Intermediate crude futures fell as much as 3.1% in New York before paring losses, while global benchmark Brent crude slid as much as 2.9% in London. Soybeans retreated the most in almost a month in Chicago, while copper led industrial metals lower with a 5% slump. Gold dropped below $2,700 an ounce.
With Trump clinching a return to the White House, a gauge of the dollar posted its biggest gain against major currencies since 2020, making raw materials priced in the greenback more costly for many buyers. The likelihood of trade disputes with China is particularly concerning for agricultural markets.
“Overnight trading saw widespread losses across the commodities sector,” said Ole Hansen, head of commodities strategy at Saxo Bank. Markets believe a Trump presidency “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.”
So-called soft commodities including coffee, cocoa, cotton and sugar also retreated.
The election results rippled across a host of equities tied to commodity markets as well.
US steel stocks rose Wednesday morning on the anticipation that Trump will favor one of his top priorities during the first administration: tariffs on imports of the commodity from across the globe. Container shipping equities plunged on the specter of potential tariffs curbing seaborne trade. Shares of renewable-energy companies dropped on the prospect that Trump will boost fossil fuels and undo the green agenda of his predecessor.
Crude Swings
Crude has already suffered a series of major price swings throughout October, and a Trump win may mean that curbs on Russian exports are eased, while there may also be tighter sanctions on Iranian flows, RBC Capital Markets analysts wrote previously.
“US foreign policy is shaping up to be a potential factor for oil markets in the near term” over Iran, said Vivek Dhar, an analyst at Commonwealth Bank of Australia.
For metals, both a stronger dollar and the possibility of a deeper US-China trade war would create headwinds for prices, said Marcus Garvey, head of commodities strategy at Macquarie. Still, investors will also be mindful that Beijing could respond with stimulus measures to invigorate domestic demand.
Gold fell on the dollar’s strength, though a number of analysts believe a Trump victory may be bullish for bullion in the longer run, fueled by US inflationary pressures and currency weakness in China.
“I think anyone who’s super high conviction on how it all nets out is much smarter than I am,” Macquarie’s Garvey said, referring to Trump’s possible foreign policy plans. “Or maybe being a bit naive.”
To get Bloomberg’s Energy Daily newsletter into your inbox, click here.
--With assistance from Yongchang Chin, Jack Ryan, Mia Gindis, Ilena Peng, Joe Deaux and Yvonne Yue Li.
©2024 Bloomberg L.P.