The Trump “Twitter Effect” On Oil Prices

All coming from early morning Presidential tweets.

The impact has been accelerating volatility, widening losses in market cap, and rising investor uncertainty.

These have not been the result of market factors.

They are a direct result of the President’s decision to govern via Twitter.

And now all of this has begun to impact the oil price environment…

Crude Prices Vs. Political Antagonisms

In a normal environment, crude prices don’t respond immediately to domestic political antagonisms.

That is unless they directly impact regulations governing production or the provisions (or withholding) of subsidies and tax benefits.

The current situation is different.

The markets are now wrestling with how protracted political imbroglios will translate into downward pressure on business development, import/export expectations, consumer demand, and a wide range of purely domestic economic matters.

Yes, the tax cuts have injected some much-needed liquidity into the system.

Yet the employment picture remains uncertain. With most workers receiving a one-time bonus (if anything at all) rather than additions to salary and benefit bases, the net impact on expanding available jobs remains open.

It now seems likely that the tax largess will not result in a significant new wave of employment.

Many companies are opting to use the tax windfall to increase capital expenditures, replace equipment, improve dividends, and/or expedite stock buybacks.

Yet two results are already apparent.

First, the first two categories are one-shot events.

Some employment may be generated upstream where the capex is spent. However, by itself, it may not be sustainable or a large addition.

Second, the enticements via dividend hikes or stock buybacks have already been folded into investor anticipations.

The bump has come and gone.

This is all occurring against a backdrop of guaranteed rate hikes by the Fed…although the exact number in 2018 remains at issue.

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