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Trump fires Rex Tillerson – consequences for the markets

Summary:

  • Donald Trump fired State Secretary Rex Tillerson
  • Tillerson was more moderate on many key issues
  • OIL and US500 can be among markets influenced by this decision

After the departure of Gary Cohn, the firing of Rex Tillerson could be another step towards a more radical and unpredictable White House. We take a look at major differences between president Donald Trump and his ex-State Secretary and consider possible market implications.

Nuclear deal with Iran

This might be the most important difference between the two politicians. President Trump has continued to criticise the deal that lifted some sanctions on Iran under the Obama presidency and seems to be ready to withdraw from it. Tillerson supported the deal, saying that the US needed to cooperate with European partners to ensure that Iran complies with the rules. Iran is an important oil producer and was able to increase its exports significantly once sanctions were lifted.

Geopolitics: North Korea and Israel

Trump and Tillerson often differed on their stance towards North Korea. Last year Trump publicly ridiculed his Secretary saying that he should “stop wasting his time” negotiating with the regime. It seems like the president has had a major change of heart, agreeing to meet with Kim Jong Un but not by Tillerson’s persuasion; indeed, he was not even consulted. The President also turned a blind eye to Tillerson’s concerns regarding the controversial relocation of the US embassy from Tel Aviv to Jerusalem. Overall, Rex Tillerson often worked as a cushion to president’s brute approach - and this cushion will now be missing.

Paris Climate Accord

Donald Trump pulled out of the Paris agreement last June, despite opposition from Tillerson who was still saying three months later that the US could re-join “under the right circumstances”. It can be argued that the recent departure of strong personalities from the White House could see the US pulling off from other agreements in an effort to introduce one-sided protectionist measures.

Stance on Russia

Let’s recall that a year ago, markets were seriously considering an impeachment scenario when revelations about the involvement of Russia in the presidential elections came to light. Tillerson publicly admitted that Russia meddled during the campaign and just days ago accused Moscow of direct involvement in the poisoning of the ex-Russian spy Sergei Skripal. Donald Trump took a much softer approach, making himself vulnerable to accusations on links with the Kremlin.

Markets to watch:

OIL

Should the US reintroduce sanctions on Iran, a possible drop in production could reduce global supplies more significantly than all of OPEC’s efforts. One could only imagine how serious consequences could be.  Although Tillerson’s departure does not automatically lead to such a decision, the risks have certainly increased. On the chart, we can see that a 150-day moving average keeps serving as support and the price is locked in a short-term triangle formation, making an impulse move quite likely in the near-term.

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Oil prices could be affected if Trump puts a deal with Iran at risk. Source: xStation5 

US500

Although Wall Street has recovered from a February slump, we can see that there’s much more volatility on the US500. A rebound has reached a 78.6% retracement of a correction so technically bears have an opportunity to attack. We can observe a relatively larger volume on “down” days, a sign that bears are yet to throw in a towel. Any signs of trade wars escalations would be the most serious threat from the political point of view.  

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Bears on US500 are yet to give up following a major pullback in January. Source: xStation5  

 

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