Trump a boon for Aussie commodities

By Jack Derwin

November 15 2016
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Despite uncertainty around the ramifications of a Trump presidency, it appears Australian commodities could emerge the real winner from the US election.

While details of his exact policies remain unknown, Donald Trump’s largely touted infrastructure spending would likely support commodities, particularly in Australia, according to HSBC chief economist Paul Bloxham.

“A Trump presidency looks likely to mean the Americans will be spending more on infrastructure which could very well lead to hard commodity demand and support for commodity prices,” Mr Bloxham told nestegg.com.au.

“Of course though, there’s considerable uncertainty of how much of what’s proposed will actually become policy. That makes it even trickier to figure out what the implications of Donald Trump being president will be for the US economy and more broadly the global economy.”

Australian resource investment manager Terra Capital said that despite ambiguity surrounding policy detail, investor confidence in commodities is already starting to show, with copper rallying to a 15-month high last week.

“While the exact pathway to resources’ return to favour is unclear, our view is that the upwelling in some commodities was a relief rally and that is likely to continue and broaden into a wider recovery for commodities generally,” Terra Capital portfolio manager Matthew Langsford said.

“This change is visible particularly in base metals, with gains posted in copper, nickel, aluminium, zinc, lead, and nickel over the last week,” he added.

Improved investor confidence seemed to also be reflected in the price of gold, as it began to weaken after experiencing strong investment in the weeks leading up to the election.

“Gold was weaker on the back of a broadly stronger US dollar, with spot falling 4 per cent to US$1,272/oz. Gold traded up sharply on Wednesday (pre-election result), trading above US$1,330/oz before giving up most of its gains, as a victory speech from US president-elect Donald Trump helped the dollar rebound,” Mr Langsford said.

“The repercussions of the US election result are supportive of an improving demand outlook for commodities, given infrastructure spending, potential tax cuts, rising inflation, etc.”

However, despite a predicted boom for commodities, the forecast is unlikely to improve for Australian mining states.

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