The USA electoral campaign and energy prices: is there a connection?

The U.S. presidential election is a pivotal event with far-reaching consequences, influencing not only the political landscape but also the economy, financial markets, and international relations. Markets even before the announcement in November try to put a price on the potential outcome of the elections. Any major event that is presumed to shift the results in favor of one of the two major candidates can significantly alter the medium to long-term outlook on prices in the global markets. In this short blog we investigate the impact of the first debate and then the withdrawal of President Biden from the presidential race had on Brent and TTF prices. To understand the potential impacts of such significant events, we utilized Rekon’s own predictive model ecosystem that was developed for the energy markets, the enREKON.*

The First Presidential Debate and Its Immediate Effects

The first presidential debate, held on June 27, marked a crucial moment in the election cycle. We analyzed the outcomes of our model runs from June 26 and July 3 to assess the immediate effects of the debate. While various factors could have influenced the results, the debate and subsequent opinions and speculations had the most significant impact.

In the short term, we observed a slight increase in the expected economic performance of the U.S. compared to pre-debate projections. The model predicted lower interest rates, higher inflation, a larger fiscal deficit, increased financial volatility, and higher lending activity. These projections highlight the sensitive nature of economic indicators to political events and public sentiment.

In the energy markets, the debate led to predictions of slightly higher sustained Brent prices, with approximately a $2 per barrel increase expected to persist for years. This illustrates how political events can influence commodity markets, affecting global supply and demand dynamics.

Impact of the Democratic Candidate's Withdrawal

Another significant development was the withdrawal of the current president and Demmocratic nominee, Joe Biden and on 21 July. We examined the forecast changes before and after this announcement. Initially, there was a slight decline in U.S. growth, but the model projected higher growth and industrial output after 2025. Interest rates were expected to be marginally lower, with reduced lending rates compared to previous trajectories. This shift was accompanied by higher credit outflow.

Brent and TTF prices were predicted to decline more in the next few quarters following the announcement but remain significantly higher after 2025-2026 than previously forecasted. This could be attributed to the Republican nominee, Donald Trump's increased chances, potentially slowing the green transition. Even the growth rate of wages was expected to slow, reflecting broader economic adjustments.

1. Figure: Brent and TTF price forecast vis-a-vis the 2024 USA electoral campaign

*The enREKON model, with its dynamic and adaptable framework, was instrumental in capturing these nuanced changes. By incorporating behavioral functions and leveraging machine learning, enREKON provides insights that purely data-driven systems cannot. The model's ability to adapt to new information and predict outcomes based on the most likely scenarios sets it apart as a leading tool for global modeling. You can gain access to the model through our unique dashboard: www.rekon-forecast.hu