In fact, in NN IP’s view political uncertainty could just as easily push up the prices of commodities in 2017 as knock them down.
The firm explained that although uncertainty would weaken economic growth and therefore demand for commodities, it would also disrupt supplies and raise prices.
The asset manager noted that the high level of political uncertainty over the last year did not prevent strong commodity price performance. Prices rose largely in line with increased economic policy uncertainty, with a high positive correlation of around +0.48.
“The reflation trade that started with improving macroeconomic data on a global scale at the end of the summer gained further traction with the election of Trump in early November and the anticipation of substantial US fiscal stimulus,” said Koen Straetmans, senior strategist multi-asset at NN IP. “Commodities have fared well in this environment and actually outperformed equities last year. Increased geopolitical risk or an increase in protectionism could just as easily lead to commodity supply disruption, sending prices higher in the near term despite negatively impacting commodity demand, too.”
“Over longer periods, correlation between broad commodity prices and policy uncertainty is low to slightly negative,” Straetmans added. “Exceptions include precious metals with a more pronounced positive correlation, and a strong negative correlation with the energy segment.”
