How the US Election Impacts Freight and Commodity Markets
Welcome back to Freight Up, the premier podcast from Freight Investor Services where we dissect and explore the major movements and current developments in the freight and bulk commodity markets.
We're Jess and Davide, and we'll be your guides today as we delve into a special episode centered on the recent US Elections and their implications for our industry.
Joining us are experts Archie Smith, and Hao Pei, who will share their unique insights on how the election results might shift our markets.
By listening in today, you'll gain a deeper understanding of how the political landscape influences freight and commodity trading, ensuring you stay ahead of the curve.
In this episode, we'll kick things off with a comprehensive freight update.
From the latest news in the American job market to the latest index movements, we've got you covered.
As we transition to specific commodities, we take a closer look at how the US elections are likely affecting iron ore and fuel oil markets.
We learn the potential impacts, particularly focusing on dry bulk markets and how Trump's probable victory might reignite trade tensions with China, affecting grain and steel exports.
Hao connects the dots between geopolitical movements and China's proactive fiscal policies.
Finally, Archie examines how the election results are already causing ripples in the fuel oil market, shedding light on the immediate bearish impact on crude oil prices following Trump's rise and the longer-term implications of tariff impositions.
Links referenced in this episode:
Companies mentioned in this episode:
- Freight Investor Services
- Kaizen General Service
- FIS Live
00:00:00
Freight up.
00:00:03
Hello and welcome back to Freight up, the freight and Commodity
00:00:05
podcast of Freight Investor Services.
00:00:07
My name is Jess and together with Davide we will be your hosts
00:00:10
as we navigate our major freight and bulk commodity markets.
00:00:13
We have a special episode today as we will be focusing on the
00:00:16
US Election.
00:00:17
The people of the United States have cast their votes and
00:00:20
we are waiting for the final results, but it seems that Donald
00:00:23
Trump will take up residence at 1600 Pennsylvania Avenue.
00:00:27
We have assembled our experts to discuss how the markets have been
00:00:30
responding.
00:00:31
So as always, we will begin with our freight update followed
00:00:34
by insights from how pay on iron ore and arches meet on fuel
00:00:38
oil.
00:00:39
But as usual, let's first look at the latest news and index movements
00:00:44
of the last two weeks.
00:00:47
Before we get into it, Davide, I think we've got some Freight Investor
00:00:50
Services news.
00:00:52
Yes, it is also like American related as we are officially opening
00:00:58
a new office in the heart of Manhattan.
00:01:00
So it's going to be located at 1120 Avenue of the Americas and it
00:01:06
also underscores the significance of the United States
00:01:08
in the freight and commodity markets.
00:01:10
And Janet Mirasol has been appointed Branch Manager and will
00:01:13
oversee the new office operation.
00:01:15
So this new office opening will strengthen the Freight Investor
00:01:19
Services presence in the US Especially considering the context
00:01:22
of heightened volatility in the freight market after the US Elections.
00:01:26
And we'll integrate this office into our worldwide network
00:01:30
and we will be able to offer a 24 hour client support and continue
00:01:35
to improve our global footprint and provide continuous
00:01:38
service for our customer base.
00:01:42
Let's begin with the US economy.
00:01:44
In October, the American economy added just 12 jobs, significantly
00:01:49
lower than the downward revised 223 jobs added in September
00:01:55
and well below forecasts of 113.
00:01:58
This marks the lowest job growth since December 2020 when the
00:02:04
economy lost 243 jobs.
00:02:06
The unemployment rate remained steady at 4.1% in October, consistent
00:02:12
with the three month low recorded in the previous month and
00:02:15
in line with market expectations.
00:02:17
Currently approximately 7 million individuals are unemployed
00:02:21
in China.
00:02:22
The Kaizen General Service hit 52 from previous 50.3 with market
00:02:28
consensus of 50.5.
00:02:30
The data is clear win for those who believe sentiment is turning
00:02:34
in China.
00:02:35
Now let's turn to the Eurozone.
00:02:37
The GDP grew by 0.4% quarter on quarter in the three months leading
00:02:42
up to September, representing the strongest growth rate in two
00:02:45
years following a 0.2 increase in the second quarter.
00:02:49
This figure also exceeds the forecast of a 0.2 according to the
00:02:53
preliminary estimates on a year on year basis, the eurozone
00:02:57
economy expanded by 0.9% in Q3, making its best performance since
00:03:02
the first quarter of 2023.
00:03:05
In terms of inflation, the annual rate for the euro area rose
00:03:08
to 2% in October, up from 1.7% in September.
00:03:12
This is the lowest since April 2021 and slightly above the forecast
00:03:18
of 1.9% as reported by preliminary estimates from Eurostat.
00:03:23
But what are the market movements of the last two weeks?
00:03:26
Let's take a quick look.
00:03:28
So let's start with the CAPE sizes.
00:03:29
Last Tuesday the C5TC index experienced a dip, falling to $15
00:03:36
from 16 of the October 22.
00:03:40
However, it rebounded slightly to 16 yesterday.
00:03:45
On the Panamax front, we observed the decline from $11
00:03:49
on October 22 to $10 yesterday, showing minimal changes
00:03:57
since last Tuesday.
00:03:59
Let's have a look at the smaller ships.
00:04:01
The S10TC reached $12 yesterday, making the end of a two
00:04:08
week decline that began at $13 and the HS70C followed a
00:04:14
similar trend, decreasing from 13 two weeks ago to 12 on
00:04:21
the 29th and further down to $12 yesterday.
00:04:27
Now let's have a look at what has happened in the dry FFA market.
00:04:30
So can you talk me through the last movements of the week?
00:04:35
Okay, so last week brought more stability compared to the volatile
00:04:38
start to October, though rates did continue to decline across each
00:04:43
vessel segment.
00:04:44
Capes most of the movement happened early last week, while intraday
00:04:48
ranges narrowed towards the end of the week.
00:04:50
Monday saw minimal support with November holding around $17
00:04:54
and Q1 trading down to $13.
00:05:00
Tuesday brought in a bit more activity.
00:05:02
It was particularly active on the spreads with November versus
00:05:05
December trading from minus $2 to minus $2.
00:05:11
A positive index shift spurred some buying interest that was up
00:05:16
to $604 to $15 and that pushed November up to $18.
00:05:23
By Wednesday, however, November had stepped back down to
00:05:29
$17, a drop of $2 while December rose to 19.
00:05:36
Low liquidity took over for the remainder of the week and November
00:05:39
closed at $17 in a fairly narrow intraday trading range.
00:05:46
And when it comes to the Panamax instead, like did we had
00:05:49
like similar movements or not?
00:05:50
Yeah, broadly speaking, I would say so.
00:05:52
The rates flattened last week compared to recent weeks, but there
00:05:55
was still a week on week decline.
00:05:58
Monday saw resistance for November at $10, with December
00:06:04
trading around $10.
00:06:06
Much of the week's volume focused on Cal25, which traded between
00:06:15
$11.
00:06:15
However, Wednesday reversed some of Tuesday's gains, dropping
00:06:20
November and December back down to $10 and $10 respectively.
00:06:26
And Friday was quiet I guess due to the slowdown of the Singapore
00:06:31
holidays on Thursday with November briefly touching lows of
00:06:34
9 DOL before closing slightly higher at $9.
00:06:41
December also bounced back slightly from the day's lows, ending
00:06:44
at $10.
00:06:49
Okay, jest.
00:06:49
And what about Supermaxes?
00:06:51
The downtrend persisted and demand remained weak across the Atlantic
00:06:56
and Asian markets.
00:06:57
Monday opened with an early weakness and November traded down
00:07:01
to $12 by Wednesday.
00:07:03
November and December we're trading at $12 and $12 respectively
00:07:10
and closing at their day's lows.
00:07:12
Friday began with November at $12, but softened further, ending
00:07:18
the week at $12.
00:07:21
And when it comes to the volumes, what happened last week,
00:07:25
it was a.
00:07:25
Relatively quiet week on the FFA market.
00:07:28
Trading was impacted by that Singapore holiday and that resulted
00:07:32
in weekly volumes drifting down to 57 lots.
00:07:37
Cape and Panama contracts saw reduced activity with daily average
00:07:41
volumes around 3 and 4 lots respectively.
00:07:47
In contrast, the Supermax has actually gained some traction, averaging
00:07:50
1 lots per day.
00:07:53
The options market also experienced subdued activity with
00:07:56
the Supermax options being the primary focus at 2 lots traded
00:08:02
over the weekend.
00:08:02
Trading on the key voyage route also remained active.
00:08:05
The C5 route, which is the West Australia to China volumes reached
00:08:09
4 million tons for November and December contracts.
00:08:13
And the C3 route, which is Brazil to China, also saw steady
00:08:17
trading with 235 tons cleared across November, December
00:08:22
and Q2 contracts.
00:08:25
Now let's talk about US elections.
00:08:27
So this is a special dedicated to these landmark moment in the US
00:08:33
history.
00:08:33
So what is.
00:08:34
What do you think that there's going to be the impacts of the US
00:08:37
election into the freight of the into the freight industry?
00:08:40
Well, when I wrote this last night, I thought we would come in
00:08:43
this morning A little bit more unsure of the results.
00:08:46
So I had a bit of a balanced picture, but it doesn't look to be
00:08:49
going that way.
00:08:50
I think it will most likely significantly impact the dry bulk
00:08:54
market primarily because of the escalation of a trade war with
00:08:59
China as what happened in 2016.
00:09:02
So in Trump's last term, Chinese tariffs on US goods particularly
00:09:07
impacted grain and steel exports which are key dry bulk cargoes.
00:09:12
I was also reading up about the recent Geneva dry conference
00:09:16
and there they just suggested that anti China policies are likely
00:09:20
to continue regardless of that election outcome.
00:09:23
Now we know it's going to be Trump that will probably lead to
00:09:27
two quite distinct trading blocs.
00:09:30
So one led by China, Russia and Iran and the other by U.S.
00:09:34
europe and Latin America.
00:09:35
I think we've been seeing some news about that coming in this morning
00:09:39
as well.
00:09:40
What the impact of those tariffs would be in Europe as it
00:09:43
applies to us here in the uk.
00:09:45
So should these blocks form, it kind of creates this less efficient
00:09:49
trade routes which could lengthen shipping journeys which
00:09:53
then potentially offsets trade slowdowns and rises the demand for
00:09:58
dry bulk shipping.
00:09:59
There could also be some other tariff induced inefficiencies which
00:10:04
could raise freight freight prices by extending the supply chains.
00:10:07
I think there's also another point about how Trump's policies
00:10:11
would support US Coal that would benefit dry bulk carriers.
00:10:15
I don't know what would happen then in return for the new renewable
00:10:18
energy sources.
00:10:19
Maybe we'll see less of a drive to decarbonization of shipping.
00:10:24
This is definitely one of the topics that we will have to talk
00:10:26
about more like in the, in the next episodes.
00:10:29
Yeah, I think, I think that'll be something to do a bit more research
00:10:32
on and come back with some solid points there for you guys.
00:10:34
Absolutely.
00:10:35
Well, thank you Jess.
00:10:36
And as always I would like to remind all of our listeners that
00:10:40
you can read also like some of the reports that our researchers
00:10:44
are doing on our app FIS Live.
00:10:47
We also recently launched a new version of the app which is completely
00:10:52
different also from the point of view of the interface.
00:10:55
So it's more user friendly.
00:10:56
So in case you haven't tried it yet, we will recommend you giving
00:10:59
it a try.
00:11:00
You can go on our website FreightInvestorservice.com and then
00:11:04
like there's a dedicated page where you can actually have a look
00:11:06
there.
00:11:09
Next we have Hao Pei, senior analyst from our Shanghai office.
00:11:12
So how, how would you connect iron ore markets with the US Presidential
00:11:16
election?
00:11:17
Obviously this issue is one of the key macro headlines in the Market
00:11:22
trading this week and even in the fourth quarter.
00:11:25
And first, let's talk about the logical relationship.
00:11:29
As we all know, the consequences of the blockchain before
00:11:33
this week.
00:11:33
According to the prediction curve of a lot of agencies including
00:11:38
Poly Market and Cao Sheen, we felt that iron ore was always relatively
00:11:43
strong when Trump's expected winning rate was relatively high.
00:11:48
But why they why is this?
00:11:49
Because I think because the market interprets that Trump will
00:11:53
fulfill his promise and committed to resolving several major
00:11:57
conflicts and laws in the world at present.
00:12:00
So iron ore as iron ore is one of the commodity with the best liquidity,
00:12:05
the rejection of geopolitical prices naturally supports the value
00:12:10
of industrial products.
00:12:12
And in addition, the Chinese government is preparing in advance
00:12:16
for plans to increase to avoid treat barriers, including various
00:12:22
recent fiscal policies.
00:12:24
So if that happens, it will push the China government to introduce
00:12:28
more fiscal stimuli to support the steel industry and other industries.
00:12:33
So this is the other reason to support iron ore before the election
00:12:37
day and what the market participants concerned with that
00:12:42
since that Trump trading has happening couple of times before
00:12:47
the election.
00:12:48
So it might face some of the ticking gains effected during and
00:12:53
after the election day which is actually happening today.
00:12:57
And I think it's not excluded that if the expectation becomes reality,
00:13:03
that's what I'm saying, the short term capital may withdraw from
00:13:06
the previous trading.
00:13:08
I think the biggest concern for the market right now is some
00:13:11
of the traders said they are worried about tariffs coming back
00:13:15
again.
00:13:16
So I think just if we looking back to 2019, if there's a trade
00:13:23
barrier in steel industries in particular and I think it will limit
00:13:30
some of the steel exporters to export steels.
00:13:34
So in other words the iron ore demand in long run can be significantly
00:13:40
reduced.
00:13:41
But in short term people are still like waiting for some big headlines
00:13:46
from China government on the stimulus.
00:13:49
So I think it's opposite logic on the trade.
00:13:54
So are there any other factors that we should be keeping our eye
00:13:57
on for iron ore at the moment in the long run?
00:14:00
Towards the end of the year, on one hand there may be unconventional
00:14:05
stimuli from China to stabilize GDP because it really set
00:14:09
up a very high goal and they're left only a month and a half.
00:14:13
And on the other hand, hot metal enters a downward cycle.
00:14:18
So we need to keep an eye on the fundamental factors including
00:14:22
the hot metal protections in China.
00:14:25
And is there any huge change on inventory levels including and
00:14:32
shipments as well.
00:14:33
And we also need to keep an eye on if there's any solid strategies
00:14:38
from China government including alternative way to resolve
00:14:43
debt issues and more housing policies or revamping house projects,
00:14:50
something like that.
00:14:51
And moreover, and I think as the end of year approaches, winter
00:14:56
storage will lock in still cries.
00:14:59
So I think these two to three weeks may be the last period of major
00:15:04
fluctuations of the year for entire ferrous complex.
00:15:08
And entering December and January next year, I think Arnold
00:15:12
may be less interesting compared to August, October and November,
00:15:16
to be honest.
00:15:17
Okay, well thank you very much.
00:15:19
How I think there's a couple of things to keep our eyes there.
00:15:21
The U.S.
00:15:22
china trade war and how the Chinese stimulus could counteract
00:15:26
that.
00:15:27
Now let's talk about fuel oil with Archie's Meat.
00:15:30
Let's start with the main and only topic I think for the day.
00:15:33
So the US elections.
00:15:34
So can you tell us about how the US elections have affected the
00:15:37
market and what's the outcome?
00:15:39
Yeah, sure.
00:15:39
I mean, yeah, it's all been sort of very exciting watching it
00:15:42
happen live.
00:15:43
It's very much deemed a Trump victory at this point.
00:15:46
I mean as we speak the final decision isn't out.
00:15:49
But I'm sure as the listeners will be listening to this upon release,
00:15:52
it's highly likely that the Trump victory will be confirmed given
00:15:55
the current status.
00:15:56
And yeah, I mean this has had a sort of direct impact on crude
00:15:59
already.
00:15:59
We've actually off about 2% on the day for the front month future,
00:16:03
it's sort of trading well it stooped down to a $73 handle and
00:16:07
I think it's around sort of mid 74s at the minute.
00:16:09
Instant short term bearishness is predominantly just because of
00:16:13
such a strong US dollar surge.
00:16:15
So yeah, US dollar is really sort of backed the Trump victory.
00:16:18
We've seen a massive rise in that.
00:16:19
And obviously where all of the majority of commodities, crude being
00:16:22
one of them, are traded in dollars, the stronger the dollar
00:16:25
against its counterparts, the less buying power that holders of
00:16:29
that foreign currency have.
00:16:31
So that's often why we see an inverse relationship between US Dollar
00:16:34
and US crude.
00:16:34
This is why we're seeing what's happening right now with the
00:16:36
crude coming off.
00:16:37
There's a few arguments sort of looking at the longer term outlo
00:16:41
in the sea.
00:16:42
We know if it is a sort of Trump 2.0 situation, tariffs will
00:16:46
be likely and tariffs on the most part are not good for global
00:16:50
demand.
00:16:51
Especially if he were to heavily tariff China.
00:16:55
Obviously China are the world's biggest crude importer and
00:17:00
China already in a sort of economic state of pretty poor demand
00:17:03
given their history.
00:17:04
So I think further tariffs and regulations on that could be bearish
00:17:09
for oil.
00:17:10
On the other Hand, we could see a bit of an uptick with perhaps
00:17:14
more sanctioning.
00:17:15
We know, we know Trump likes a few of those as well.
00:17:18
We've seen them in the past.
00:17:19
Maybe they were returning this.
00:17:20
Yes.
00:17:20
So could be heavier sanctions on Iranian oil or perhaps some introductions
00:17:26
of some new sanctions.
00:17:27
You know it is as I said, it is up in the air at the minute.
00:17:30
But you know, just basis Trump's history.
00:17:33
Yeah, it could be, could be bearish oil if those tariffs really
00:17:36
sort of come into play.
00:17:39
So if we see that happening again, I mean like it will be a little
00:17:42
bit of a continuation of some of the policies that we've seen in
00:17:44
the first Trump mandate.
00:17:45
100%.
00:17:46
100%.
00:17:47
Yeah.
00:17:47
And so and this morning as I say like we woke up with the news
00:17:51
of course like coming from the US we woke up in Europe.
00:17:53
So what about the fuel market?
00:17:55
How did it feel this morning?
00:17:57
How did the fuel market woke up?
00:17:59
Fuel market is not something that would directly sort of react
00:18:03
to this sort of news.
00:18:05
Although overall, whether it's Trump related or not, fuel market
00:18:09
has felt very strong this morning.
00:18:10
Cracks rallying across the board.
00:18:12
High sulfur and low sulfur spreads are pushing as well.
00:18:15
And as those spreads are pushing, we are actually seeing from
00:18:18
our side, we are seeing quite a lot of shipping guys who are selling
00:18:21
into that rally to roll their positions.
00:18:24
So yeah, some of our, some of our biggest sort of European shipping
00:18:27
guys have been selling a few of the spreads to roll their exposure
00:18:30
into the next month.
00:18:31
And the east west as well.
00:18:32
The high sulfur east west that's ticking up having been sort
00:18:35
of having been negative territory last month at some points
00:18:39
that's now trading around 8, 9 bucks in the positive territory.
00:18:42
Meaning that once again the Singaporean stuff is trading at a
00:18:46
premium to the European high sulfur fuel oil.
00:18:48
But yeah, the fuel market feels firm, feels strong crude off
00:18:52
on the day.
00:18:53
Let's see where this result comes in and let's see what the market
00:18:56
has to hold for all of us.
00:18:57
Yeah, it will take a few days I'm sure, like also considering the
00:19:00
last elections, but like probably the next.
00:19:02
In the next episode when you will be back in the booth, we will
00:19:05
have like a different, well, more of a firmer picture.
00:19:08
100%.
00:19:09
Yeah.
00:19:09
Okay.
00:19:09
Thank you very much Archie, as usual.
00:19:11
Thank you.
00:19:13
And that's it for this week.
00:19:14
Make sure to subscribe by clicking the subscribe button on
00:19:17
wherever you get your podcast.
00:19:18
Also make sure to follow us on LinkedIn or get signed up to our
00:19:21
app FIS Live to make sure you never miss any freight and commodity
00:19:25
analysis from fis.
00:19:26
Thank you.
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