The Real Loser in Trump’s State of the Union Address

Thursday, 6 February 2020
Adelaide, Australia
By Bernd Struben

  • Markets
  • OPEC’s nightmare

Do the Americans really need to one-up the rest of the world on everything?

Apparently…

Biggest military. Biggest economy. Biggest cars. And now they’re vying for biggest partisan divide.

If you think the relationship between Scott Morrison and Anthony Albanese is frosty, you probably missed Trump’s State of the Union Address.

The look on Nancy Pelosi’s face was a mask of frigid bitterness. An intentional look that was impossible to miss.

That’s because the Democratic Speaker of the House sits directly behind the president. And sit she did, refusing to stand throughout most of the address. As did most of her fellow Democrats in the audience.

It all came to an ugly climax when Pelosi theatrically ripped her copy of Trump’s speech once he’d finished. That’s after she allegedly ‘pre-tore’ some of the pages earlier.

Apparently she was testing the paper’s strength…and her ability to tear it…to avoid an embarrassing failure. One that may have forced her to resort to a pair of scissors.

Not quite the same impact.

I watched the entire spectacle last night, courtesy of NBC and YouTube. And I perused the mainstream news this morning to gauge how it was being reported.

Not surprisingly, the open hostility between the two parties garnered most of the headlines.

Almost missing — unless you go looking for it — is perhaps the most significant moment of the event. As you can see below, it even got Pelosi and the other democrats applauding on their feet.



chart image
Source: Bloomberg
Click to enlarge

What inspired this rare moment of unity?

Venezuelan opposition leader Juan Guaido. He was seated in First Lady Melania Trump’s box…the place everyone’s looking up at.

Guaido, as you likely know, contests sitting President Nicolás Maduro’s claim to the office. Election results were rigged, he and his supporters say. Guaido was the true winner. Yet after a year of sometimes violent protests, Maduro remains in power.

Most of the West has thrown its support behind Guaido. And Maduro’s refusal to step down has seen the US impose harsh sanctions on the already struggling South American nation. Including crimping its vital oil exports.

During his address Trump upped the odds in typically undiplomatic fashion. Asking the opposition leader to stand, Trump called Guaido the ‘true and legitimate president of Venezuela’.

As both parties cheered on, he continued:

Mr President, please take this message back to your homeland. Americans are united with the Venezuelan people in their righteous struggle for freedom. Socialism destroys nations. But always remember, freedom unifies the soul.’

And Trump didn’t hide his disdain for Maduro, calling him ‘an illegitimate ruler’. He also promised, ‘Maduro’s grip on tyranny will be smashed and broken.

Yikes.

Keeping the momentum going, Trump and high-level US officials met with Guaido at the White House yesterday (overnight our time). And the picture for Maduro got even bleaker.

Reports The Guardian:

The United States has warned it was preparing “crippling” and “impactful measures” designed to force Nicolás Maduro from power as Donald Trump rolled out the red carpet for the Venezuelan leader’s challenger, Juan Guaidó.’

Short of the US engaging in direct military action — unlikely — Maduro could still cling to power for years, even under the tightest US sanctions. He certainly wouldn’t be the first South American strongman to do so. Especially with China, Russia and Cuba continuing to support his socialist regime.

But if I were Maduro, I’d be actively planning my exit strategy.

You see, the balance of power took a big swing back towards camp Trump this week. His rapid acquittal by the Senate on both impeachable charges has seen his approval rating hit peak levels. Just in time to really gear up for the November elections.

With his popularity surging, Trump will be even more emboldened to use the formidable powers of his office. It’s no stretch to see him pull some levers to convince Russia’s Putin and China’s Xi to drop their support for Maduro.

By the time US voters head to the polls — likely handing Trump four more years in the White House — I expect Maduro will be holed up in another country.

But even if the democrats manage to get their act together to win the election, don’t forget the rare and fervent bipartisan support on display for Guaido.

As entertaining as Trump’s State of the Union Address was for the rest of us, I imagine Maduro would just as soon have given it a pass.

Now, to the markets. Again surging ahead…

Markets

Overnight, the Dow Jones Industrial Average closed up 483.22 points, or 1.68%.

The S&P 500 closed up 37.10 points, or 1.13%.

In Europe the Euro Stoxx 50 index closed up 45.56 points, or 1.22%. Meanwhile, the FTSE 100 gained 0.57%, and Germany’s DAX closed up 196.59 points, or 1.48%.

In Asian markets Japan’s Nikkei 225 is up 518.46 points, or 2.22%. China’s CSI 300 is up 0.97%.

The S&P/ASX 200 is up 64.35 points, or 0.92%.

West Texas Intermediate crude oil is US$51.21 per barrel. Brent crude is US$55.28 per barrel.

Turning to gold, the yellow metal is trading for US$1,555.62 (AU$2,304.62) per troy ounce. Silver is US$17.62 (AU$26.10) per troy ounce.

One bitcoin is worth US$9.644.48. That’s a 5.3% gain overnight, if you’re keeping track.

The Aussie dollar is worth 67.50 US cents.

OPEC’s nightmare

Oil prices perked up overnight after rumours emerged out of China that a cure for the novel coronavirus may be nigh.

Rumours the WHO promptly quashed. But never mind…

After trading US$49.67 per barrel yesterday, WTI bounced back to US$51.21 this morning. Brent also added a bit more than US$1 per barrel on hopes global demand won’t crater under the strains of a pandemic.

While we can all hope, that remains to be seen. Bloomberg estimates China’s oil demand has already plummeted 20% as factories shut their doors under sweeping quarantines.

And the virus’ impact goes well beyond China.

From the AFR:

A slowdown in the global economy resulting from the outbreak is expected to reduce 2020 worldwide oil demand growth by 300,000-500,000 barrels per day (bpd), roughly 0.5 per cent of total demand, BP’s chief financial officer Brian Gilvary said on Tuesday.

You can see the impact on crude prices below:



chart image
Source: Bloomberg
Click to enlarge

Little surprise then that OPEC+ is huddled in Vienna in yet another effort to prop up prices by cutting supply.

But that meeting doesn’t appear to be going according to Saudi Arabia’s script. The Saudis are intent on doing whatever it takes — or whatever they can — to keep crude prices from tanking. But Russia, the ‘plus’ member, isn’t eager to play along this time around.

The cartel’s two days of scheduled talks have now entered a third day. It seems Russia is reluctant to cut more output than already agreed to in December. An agreement that ends this March.

To add to OPEC’s woes, Reuters reports that US crude inventories climbed 3.4 million barrels in the last week of January, again beating analyst forecasts.

And let’s not forget Venezuela.

If Trump manages to help oust Maduro in favour of Guaido, he’ll lift the embargo on the oil rich nation’s crude exports.

It would also open the door for the big international oil companies to invest in Venezuela’s notoriously beleaguered oil fields.

That will spell more bad news for OPEC. But it could prove a boon for companies like Chevron, Exxon or BP.

Cheers,
Bernd