June 2019


         Donald Trump is a true artist. We know when the public’s attention begins to lag, the artist on stage must change their tone, modulate their voice by modifying the inflection, whispering and then brutally waking the audience with a well simulated fit of fury.


         This is exactly the Trumpian strategy on some of the issues that interest CyclOpe.

         With respect to Iran, as an aircraft carrier and a B52 squadron crossed into the Gulf following attacks on tankers off Fujairah and sanctions against Iran’s latest economic partners become more precise, Donald Trump declared in Tokyo that he does not wish the fall of the Islamic regime and gave Shinzo Abe carte blanche as negotiator with Iran. Markets appreciated and, at $70 a barrel, downplay—perhaps wrongly—the Middle Eastern political risk.


         The same scenario for North Korea where the South Koreans nevertheless must have choked on Donald Trump’s praise of ‘young’ Kim.

         Things are more complex with China and there, Trump is deploying a very Macronian ‘at the same time’. Never were tensions so strong between China and the United States and with the ‘Huawei affair’, the conflict has changed in scope. China reacted by making its opponent feel that its real Achilles heel regarding new technologies is in rare earths. Soybeans have moved into the background even though the USDA has cleared $16 billion to help the farmers again. Negotiations are blocked at least until the G20 summit in Japan in late June. Nevertheless, Donald Trump is optimistic about the favourable conclusion of an agreement with China, which has nevertheless reacted with new taxes and needling over Fedex.


         With his Canadian and Mexican neighbours, on the one hand he ended up lifting the taxes that hit steel and aluminium, but on the other, has engaged in a showdown with the Mexican President Obrador (AMLO) by implementing taxes of 5%, which could go up to 25%, on Mexican exports if Mexico does not limit uncontrolled immigration. At the same time, he also lifted the additional duties that affected the Turkey of Erdogan’s steel exports.


         Finally, as far as Europe is concerned, he must be—like all of us—looking to see who his opponents will be in the autumn of 2019, and it is not very certain that Steve Banon will be much help to him in this regard. Coincidentally, he has lifted the threat of sanctions on European automobiles for a few months. But the threat remains and he has placed eight countries under surveillance, including Germany and Italy for currency manipulation. In early June, he will be on the beaches of Normandy to celebrate the 75th anniversary of ‘D. Day’. This may be the occasion for a few tweets illustrating his ‘formidable presence’ and for adding a little oil to the fire of Brexit by praising Nigel Farage and Boris Johnson.


         Our artist, as we see, has the ability of occupying several scenes at the same time. He is fortunate enough to have only a few ‘amateur’ Democrats to face and to be supported by an audience that appreciates a quality economic performance (3% growth, 3.6% unemployment) based on the power of the new economy and the oil and shale gas revolution.


         The sequel of course remains to be written: reason would push for a ‘peace of the braves’ with China, a pause in the escalation with Iran, an opening on the other hand to new ‘fronts’ and why not to this true ‘soft belly’ that Europe has become. But do not doubt it, Donald Trump is able to surprise the world…


         In any case, it may seem excessive to focus on Donald Trump alone. But the impact of the smallest Trumpian tweet on the oil and gas markets, soya or pork, steel or rare earths (a non-exhaustive list of course) are such that we must give him our full attention.


         For the rest, the contrast is great between the metal markets, which are prone to doubt despite well-oriented fundamentals like copper, and the agricultural markets crumbling under the prospect of historical harvests that only African swine fever in China and the rest of Asia is in any way—very much in fact—upsetting.


         In conclusion, some figures: 70, 8, 100, 111, 120. Not a lottery sequence, but:

  • $70 a barrel of Brent, the average price in May offers evidence that the markets do not ‘price’ the political risk in the Middle East.
  • $8 for a bushel of soybeans, down as a result of the worsening Sino-US trade war.
  • $100 per tonne for iron ore, rising as a result of Brazilian accidents and record steel production in China.
  • $111 million for a Monet painting sold in New York, the star of a week of sales that totalled more than $1.5 billion
  • €120 million is the minimum price for the transfer of French footballer Griezmann from Atletico de Madrid to Barcelona. But here, there may be other records expected for the next ‘mercato’.

         Art and football, two of the few areas that remain outside our Trumpian concerns!


Philippe Chalmin


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