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As News Hits the Wires of Trump Threatening the Saudis, Is Time Running Out for Team Trump?

As the markets digest the latest GDP numbers, there remains plenty for the markets to consider over the coming weeks and beyond…
Bob Mason
Trump, capitol hill

With the end of the month upon us and the European markets closed tomorrow, there will be an opportunity to digest.

1st quarter GDP numbers were particularly dire, with COVID-19 leaving few economies unscathed.

From east to west, we saw China’s economy contract by 9.8% in the 1st quarter, the EU by 3.8%, and the U.S by 4.8%.

When considering the fact that lockdown measures across the West were more stringent in April, 2nd quarter numbers should be more aligned with those from China and the East.

Central banks have made a number of moves that have delivered almost incredible support to the global equity markets.

Crude oil prices, however, have certainly been on a different journey. WTI May Futures slumped into negative territory for the first time.

The output from the world’s largest oil producers continues to weigh, with the U.S Administration now forcing OPEC’s hand.

Crude Oil

Trump has attempted to bring oil price stability and has failed badly. Not only did the U.S President fail to deliver a cut in oil production to the tune necessary to reverse the ramp-up in inventories but has, till now, also failed to raise fear of supply disruption by turning the screws on Iran.

Ironically, sanctions on Iran mean that a threat of attacking Iran has little to no effect on crude oil prices. It would be a different story should the Iranians threaten neighbors in retaliation to the U.S threat. Such a move is unlikely, however.

So, Trump’s plan Z appears to be threatening the Saudis with an end to military support should the Saudis refuse to further scale back production.

It’s quite a move by the U.S administration that could end up losing its foothold in the Middle East.

The U.S needs more than Israel as an ally in a region that has become more controlled by Iran and its allies…

Would the U.S withdrawal of military support deliver a pickup in crude oil prices? While Iran would see such an outcome as an opportunity to deliver a 2nd attack, the Saudis will likely want to drown shale producers first.

U.S shale producers cannot stomach sub-$10 a barrel, not even close. Trump will not only have failed to support farmers but also U.S shale producers. Door open for Joe Biden

For the Saudis and a number of other governments, there is an opportunity to materially sink Trump’s chances of a 2nd term.

U.S President Election

The number of governments hopeful of a Trump victory later this year will likely be few if any…

One does wonder whether the markets will feel the same way as Election Day nears.

From an economic and political stability perspective, however, Trump will likely be an unwanted presence in global politics. Things may have been different had COVID-19 not caused such economic devastation.

There are times when globalization is a necessity in order to combat an enemy with no boundaries. Certainly now is one of those times. Tariffs should be removed at a minimum, while sanctions should remain.

It’s also not the time for political wrangling and threatening the Saudis with the removal of military support is yet another example of what shouldn’t be happening today.

Smokescreens

No doubt some of the U.S administration maneuvers are nothing more than smokescreens.

Assuming the Presidential Election goes ahead in November, there are numerous reasons why the Republicans need to divert attention away from everything Trump…

A 2-year trade war with China proved to be totally pointless with the U.S now at risk of weak demand for agri products and more…

Rubbing the Saudis up the wrong way is also unlikely to give U.S shale producers too much support.

Threatening the EU with tariffs has certainly been another negative.

And finally, there is the U.S administration’s handling of the coronavirus.

Last week, U.S initial jobless claims jumped by another 3.84m, following a 4.44m surge in the previous week.

The unemployed are not going to care about where the Dow or the NASDAQ sits. They will want to know why the U.S took such a big hit, despite China’s experiences and warnings…

Looking at the latest U.S coronavirus numbers, the total number of coronavirus cases stood at 1,065,739, with 61,715 deaths.

When considering the fact that there are still 856,551 active cases and 18,851 serious cases, it’s going to get worse before it gets better.

Opening up the economy too early seems to be yet another incredible gamble that could go horribly wrong.

The FED can continue to print money and can even deliver zero rates but at some point, there will be a price to pay.

While Trump lambasted Obamacare, the Democrats may want to pass on the presidency this time around. If we consider the Great Depression, it will take more than a year for the economy to recover. That is assuming that there is global cooperation, however… That is a big ask with Trump lurking in the wings…

The Majors

At the time of writing, the EUR was down by just 0.07% to $1.08631.

EUR/USD 30/04/20 Daily Chart

Looking at crude, it looks like the markets have bought into the possibility that the Saudis will succumb to Trump’s threat. WTI was up by 18.13% to $17.79, with Brent up by 14.02% to $25.70.

That sets crude up for another tumble should the Saudis remain silent. Let’s face it… It’s unlikely that the U.S government will want China and Russia to replace them and corner the Middle East.

When considering the laundry list of risks that remain, an end to the coronavirus pandemic will not end the market volatility.

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