November 8, 2024 (Globalinvestorideas.com Newswire) Globalinvestorideas.com, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS.com.
Crude oil is back in sharp decline today with more than 1.5% losses for both Brent and WTI.
The renewed decline in oil prices comes as hopes fade over the possibility of providing more support packages for the Chinese economy, which reinforces concerns about the future of demand for crude from its largest importers. The declines also come amid concerns about the effects of Trump’s policies that could weaken the Chinese economy and deepen those concerns.
The Standing Committee of the Chinese Legislative Council, after its meeting that lasted throughout the working days this week, approved a package equivalent to $1.4 trillion as part of a debt swap program. However, the disappointment comes with the lack of disclosure of financial measures to support the economy directly, and the debt swap measures will only push the maturity dates of the debts forward, according to what was reported by the Wall Street Journal, citing economists.
Adding to these disappointments, concerns about China’s economic recovery could intensify if Donald Trump returns to the White House next year. He has signaled a willingness to reintroduce protectionist policies, potentially imposing tariffs as high as 60% on Chinese imports. Such measures would likely hurt China’s export sector-a critical driver of its growth recovery-and heighten worries about future crude demand, which explains today’s steep losses.
On the other hand, any of the policies that Trump previously spoke about may not actually be implemented, but rather will be a tool to negotiate new terms of trade and do not mean a rupture between the two economies, according to John Paulson, who is considered to take over the Treasury Department in the new administration.
This is not the only thing that the oil market may fear, as Trump’s intention to support the production and extraction of fossil fuels and ease regulatory restrictions will put downward pressure on crude prices with the increase in supply.
I also believe that uncertainty may cloud the oil market regarding the likely path of inflation and interest rates in the United States, as Trump’s protectionist policies may fuel inflation, which may encourage the Federal Reserve to slow down the pace of rate cuts.
While this was reflected in Jerome Powell’s cautious tone after the central bank announced its decision to cut rates by 25 basis points. Trump’s victory also weakened the possibility of cutting interest rates in January of the new year, to remain below 30% after exceeding 60% a month ago, according to CME FedWatch Tool figures.
As for the geopolitical side, we do not find any certainty regarding the possible steps that Trump may take towards the Middle East front. The escalation of the conflict between Iran and Israel may lead to the disruption of oil supplies from the region, which may lead to a rise in inflation again, which is what Trump may not want. This is because reducing fuel prices is a major part of Trump’s plan to reduce inflation.
On the other hand, Trump’s intention, at least the declared one, to de-escalate the situation in the region may clash with the desires of Israeli Prime Minister Benjamin Netanyahu and behind him the far-right coalition who call for expanding the war and are counting on the Republican administration to give them a free hand in the region. While these conflicting interests may keep the uncertainty high in the markets.
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