In one of his most important speeches in Saudi Arabia, Donald Trump did not go off the rail.
Bromance Blooms Between Trump and King Salman
He certainly avoided his usual free style which he adopted during the campaign mode. Although, you can argue that there are many contradictions if one compares his rhetoric during the campaign and what he said during the speech, but for investors, this was a much more subtle approach- at least for now.
Trump signed an arms agreement with the Saudi King over the weekend which is worth nearly $109 billion. The deal would provide a lot of support to the US defence sector which has been under a major downturn during the Obama administration. The domestic job, the one which Trump talks about the most, could see a lot of strength in the coming days as major US firms like Lockheed Martin, Boeing andRaytheon would beef up their work force.
Trump and Saudi Arabia have developed a new relationship which would help both countries economically but his critical tone about Iran has escalated tensions further. This is a clear sign of warning for investors and why they should always consider buying protection on their portfolios.
Lower Volatility an Opportunity Amid HeightenedTension Between Iran and Saudi Arabia
If the Saudi Arabia and US relations have hit a new high note, then it would be safe to say that the US and Iran relations have hit a new low note. The president has taken a much softer stance towards Syria even though Russia has a lot of involvement there. Russia and Iran have a special relationship and the two countries could have their own special deal. That would escalate the tensions further and if there is any remote threat of a war, it is your precious metal which is going to see a massive spike.
The volatility index is out of luck once again and suffered a dead cat bounce. We do think that it may not be a bad idea to look at the volatility index with a view to buy protection on your portfolio. Moreover, North Korea is also constantly testing its ballistic missiles which is escalating tension in that part of the world.
OPEC’s Event Not Really A Game Changer
It is all about Crude oil this week as the OPEC meeting will take place on Thursday. Although, it is already very much priced in that the cartel is going to extend the oil production cut beyond this year but the markets may remain a little volatile as more and more headlines will emerge this week. For us, we do think that the cartel has lost its thundering power which it used to have because of the new player in the market- the US shale oil producers. We have said that we need a demand shock in order for the price to have some meaningful range. Without that, we think we are only playing a cat and mouse game. The price level above $42 is more than good enough for the US shale oil industry to keep pumping the oil. If the OPEC is serious about getting rid of the supply glut, they have to work with US shale oil producers to find the solution or bear the pain for another few months by accepting the lower price.