Episode Details

Our Deputy Director of Global Research Michael Zezas and our U.S. Public Policy Strategist Ariana Salvatore discuss the implications of the U.S action in Venezuela for global markets, foreign and domestic policy.

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Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. 

Ariana Salvatore: And I'm Ariana Salvatore, Head of Public Policy Research. 

Michael Zezas: Today we're talking about the latest events in Venezuela and its implications for global markets.

It's Tuesday, January 6th at 10am in New York. 

So, Ariana, before we get into it: Long time listeners might have noticed in our intro, a changeup in our titles. Ariana, you're stepping in to lead day-to-day public policy research. 

Ariana Salvatore: That's right. And Mike, you're taking on more of a leadership role across the research department globally. 

Michael Zezas: Right, which is great news for both of us. And because the interaction between public policy choices and financial markets is as critical as ever, and because collaboration is so important to how we do investment research at Morgan Stanley – tapping into expertise and insight wherever we can find it – you’re still going to hear from one of – and sometimes both of us – here on Thoughts on the Market on a weekly basis. 

Ariana Salvatore: And this week is a great example of this dynamic as we start the New Year with investors trying to decide what, if anything, the recent U.S. intervention in Venezuela means for the outlook for markets. 

Michael Zezas: Right. So, to that point, the New Year's barely begun, but it's already brought a dramatic geopolitical situation: The U.S. capture and arrest of Venezuela's President Nicolas Maduro – an event that can have far reaching implications for oil markets, energy, equities, sovereign credit, and politics. 

Ariana, thinking from the perspective of the investor, what's catching your attention right now? 

Ariana Salvatore: I think clients have been trying to get their arms around what this means for the future of U.S. foreign policy, as well as domestic policy making here too. On the first point, I would say this isn't necessarily a surprise or out of step with the goals that the Trump administration has been at least rhetorically emphasizing all year. Which is to say we think this is really just another data point in a pre-existing longer term trend toward multipolarity. 

Remember that involves linkage of economic and national security interest. It comes with its own set of investment themes, many of which we've written about, but one in particular would be elevated levels of defense spending globally, as we're in an increasingly insecure geopolitical world. 

Another tangible takeaway I would say is on the USMCA review. I think the U.S. has likely even more leverage in the upcoming negotiations, and likely is going to push even harder for Mexico to put up trade barriers or take active steps to limit Chinese investment or influence in the country. Enforcement here obviously will be critical, as we've said. And ultimately, we do still think the review results in a slightly deeper trade integration than we have right now. But it's possible that you see tariffs on non-USMCA compliant goods higher, for example, throughout these talks. 

Michael Zezas: And does this affect at all your expectations for domestic policy choices from the U.S.? 

Ariana Salvatore: I think it's important to emphasize here that we're just seeing an increasingly di