Trump’s presidency poses grave risks for oil-reliant Nigeria, analyst warns

Onome Amuge

Donald Trump’s electoral victory in the U.S presidential election and his potential policies could be damaging for Nigeria, a country heavily dependent on oil sales for revenue, according to Lukman Otunuga, senior market analyst at FXTM,

Otunuga believes that Trump’s policies may lead to an increase in domestic oil and gas production in the United States, which could cause the oil market to experience downward pressure over the long term.

The senior market analyst predicts that  Trump’s policies may cause a surge in US economic growth, potentially leading to higher inflation.He explained that if inflation rises, the Federal Reserve may be compelled to maintain higher interest rates for an extended period, resulting in a stronger dollar.

A stronger dollar, in turn, could potentially pull down oil prices, which could cause a knock-on effect for Nigeria, a country that is already experiencing economic difficulties.

Trump’s electoral victory  sparked a frenzy of financial activity across global markets. The US dollar experienced a 1.8 percent  surge in a single day, its most significant spike since February 2023, as traders responded to the prospects of a slower pace of Federal Reserve interest rate cuts.

Bitcoin, meanwhile, skyrocketed almost 10 percent to reach an unprecedented price level above $75,000, buoyed by the crypto community’s confidence in a pro-crypto president.

Futures traders responded to Trump’s election with optimism, as the S&P 500 futures climbed 1.4 percent, hinting at the possibility of a jump in the S&P 500 index upon the opening of the stock market.

Otunuga, in a note to Business a.m., warned that, under a second Trump administration, several financial assets such as gold, Chinese stock indices, European stock indices, and the currencies of major US trading partners (including the Euro, Chinese Yuan, and Mexican Peso) could decline in value against the US dollar.

On a more optimistic note, Otunuga believes that Donald Trump’s return to the White House would establish the direction of the market for the next few years, with assets related to the “Trump trade” standing to benefit the most.

The analyst observed that investors who experienced Trump’s presidency between 2017 and 2021 would have an advantage, as they would understand how the market reacted under his previous administration, and therefore could potentially take advantage of similar market conditions.

“Trump’s unpredictability, policy uncertainty and tariff wars with China left investors on edge. This and other major themes triggered sharp moves on the Vix index during his term. Market volatility jumped over 60% during Trump’s previous administration, from 2017 until 2020. Since then, volatility fell about 10% under President Biden,” he noted.

Otunuga warned that the potential return of Donald Trump to the White House could usher in a new era of volatility across the globe, as his administration’s policies, such as tariff increases in Europe and China, could trigger a trade war, leading to higher prices for American consumers and potentially increasing inflation.

As a result, the US dollar could strengthen, benefiting from higher interest rates and potentially pushing gold prices and emerging market currencies down, according to Otunuga’s analysis.

“On the geopolitical front, Trump has already vowed to “stop wars” and swiftly end the war in Ukraine. Any major shifts in US foreign policy that escalate tensions could trigger risk-aversion,” he stated.

In his analysis, Otunuga warned that Donald Trump’s victory could result in an increase in inflationary pressures in the long run, which may encourage the Federal Reserve to maintain higher interest rates for a longer period of time.

Otunuga advised investors to closely monitor the US dollar and gold, both of which are sensitive to US rate expectations, as these assets could be affected by changes in monetary policy under a Trump administration.

“A less dovish than expected Fed may push the US dollar higher while pulling gold further away from its all-time high at $2790.  If the Fed confirms that a December cut is still on the table, this may limit the USD’s upside while supporting gold prices,” he added.