Geopolitical Risk Resurfaces and Could Well Bring another Summer of Pain…As geopolitical risks return, the markets are going to have more to chew on. It’s no longer about how quickly the global economy can recover from COVID-19…
The markets may have been hoping for a period of calm ahead of the summer. Alas, it seems as though this may have been wishful thinking.
With U.S President Trump and the administration needing to take some blame for the 1.2m COVID-19 cases and 72,285 deaths, the markets will need to prepare for a Republican salvage operation.
Bernie Sanders’s withdrawal from the Democratic primaries couldn’t have come at a worse time for Trump.
Democratic Party in-house fighting would have at least given Trump and the Republicans something to target. With Biden now the front runner and Trump’s opponent, the tactics have certainly changed, for now at least.
The U.S economy is in meltdown and will have its worst contraction since the Great Depression.
For a U.S President who had a campaign slogan of ‘Make America Great Again’, it has certainly not panned out as planned.
The U.S – China Trade War
Of greatest concern is that the U.S trade war with China has not been enough to prize the global supply chain from China’s grip.
Trump and the administration now need another stab at diluting China’s position on the global supply chain. It has taken almost 260,000 COVID-19 deaths and a global economic shutdown…
After more than a year of punitive tariffs, the U.S is back to square one. China is not able to stick to the phase 1 trade agreement and no one will blame them for it. In fact, China may just decide that it will not stick to the agreement…
If the U.S administration doesn’t move fast, one of Trump’s campaign pledges will have left the President red-faced.
Then there is the Iran nuclear agreement that Trump announced boldly that he would withdraw from.
If the last week is anything to go by, the U.S administration is now claiming that it never withdrew… Failure number 2.
We can then look at the U.S stock markets, healthcare, and the outlook for U.S farmers and shale producers.
Neither is positive and both are unlikely to be seeing anytime but despair for the remainder of the year.
In fact, another red-faced moment for the U.S president was an unprecedented fall of WTI Futures into negative territory.
What to Expect
It’s hard to imagine what tricks the U.S administration has up its sleeve. A number do spring to mind, however.
A U.S – UK trade agreement would demonstrate that the administration is able to form alliances with the right partners. The UK economy may not be the largest, but it would be an easy win for the administration.
Trump could then force the EU into submission by using the UK as a pawn in the U.S – EU trade war. Let’s face it, the EU is in no position to battle the U.S in a trade war, let alone stomach punitive tariffs.
As for Iran, some sort of military action will be needed to justify the administration’s change in position on the nuclear agreement.
If the UN Security Council agrees to an arms embargo it would likely be a green light for a U.S led attack. A big concern, however, would be Russia and China’s stance on such a move.
Will they sit back at a time when the chances of Trump’s 2nd term look questionable?
As the summer approaches, we can expect the noise to build. In fact, it already has and China is not going to sit back. This time around there is too much at stake and, at a minimum, the goal must be to nudge Trump out of the Oval Office.
At the time of writing, the EUR was down by 0.27% to $1.08076. Dire economic data has left the EUR on the back foot once more.
One does wonder, however, whether Trump’s immediate gamble to open the U.S economy at all costs will backfire. A sudden surge in new cases and, more importantly, COVID-19 related deaths, would sure undo all of the efforts made by the FED and Capitol Hill until now.
As geopolitical risk resurfaces, at a minimum, Trump will need to end the COVID-19 pandemic.