US election market update
Following results of the US election, CEC’s Risk Management Team will be digesting market response over the course of the coming days.
The team's initial comments are as follows:
- Tariffs will impede global economic growth, and thus weigh on commodity prices, which has potential to be bearish in long term
- LNG moratorium will probably be lifted on day one or shortly thereafter, which is bearish in long term
- As might have been expected, the US dollar has gained against Sterling in early trading today
Economic growth requires hard commodities like metals and energy in order to feed construction and the movement of vehicles / goods around the world. Tariffs increase the delivered cost of these commodities by making them more expensive to pass across borders. If imports of commodities become more expensive, demand for them goes down, which in turn suppresses prices of the commodities themselves.
If the incoming US president increases state borrowing to pump up the economy, this has the propensity to increase demand for commodities, which would normally be an inflationary pressure. However, we'd note that - talking specifically about the commodity that's relevant to the UK's own fuel mix - LNG - I would note there is already a substantial premium on global LNG prices versus Henry Hub (the US gas market price), so US domestic gas demand would have to increase dramatically before it became smarter to keep US gas onshore.
In terms of impacts on price points today, we note that UK gas markets have opened down today, on the front months and on the front season. However, this may owe more to improved temperature forecasts than any geopolitical news.
CEC will continue to keep our clients updated over the coming days.
