Market Update: Trump's unpredictability intesifies trade uncertainty

Market Update: Trump's unpredictability intesifies trade uncertainty

9th December 2019

LAST WEEK – KEY TAkeAways

Trade: US and China still negotiating as Trump turns attention elsewhere

  • Global shares fell when US President Donald Trump claimed he was willing to postpone a trade deal with China until after the US presidential election in November 2020;
  • However, the markets recovered as media reports suggested the US and China are getting closer to agreeing on reduced tariffs- taxes on goods imported from abroad- for the first phase of a deal;
  • Elsewhere, President Trump announced he would reintroduce tariffs on steel imported from Argentina and Brazil who he accused of allowing their currencies to weaken to the detriment of US farmers;
  • President Trump also threatened to impose tariffs on a range of European products in response to EU support for aviation firm Airbus and a French digital tax which could affect US companies such as Amazon and Facebook.
  • Omnis view: While trade tensions between major powers rattle the world economy, US threats to tariff other countries also intensifies uncertainty. Meanwhile, the US and China inch towards an initial trade deal. The next round of tariffs on Chinese goods come into effect on 15th December, but even if an agreement is not forthcoming, President Trump may delay them because of the impact on the US shoppers before the holiday season.

UK: Chances of Tory majority lifts pound

  • Sterling strengthened against the US dollar as the Conservative party maintained its lead in the polls ahead of the general election on Thursday.
  • Omnis view: The pound’s response suggests the markets would prefer the Conservatives to win a majority as Brexit uncertainty would ease in the short term if Boris Johnson could secure backing for his withdrawal deal. However, neither side can afford to take the result for granted as the last few days of campaigning get underway.

US: Jobs market boosts shares

  • US shares rallied after the non-farm payrolls report showed the US economy comfortably beat expectations by creating 266,000 new jobs in November.
  • Omnis view: Following last week’s upward revision of growth in the third quarter, the latest jobs number provides further evidence of the resilience of the US economy. However, the recent upbeat economic data is unlikely to change the Federal Reserve’s (US central bank) mind about keeping interest rates unchanged for the time being at its meeting on Wednesday.

Asia: Chinese manufacturing picks up despite trade tensions

  • There was good news for Asian shares as data showed that activity in China’s manufacturing sector expanded in November.
  • Omnis view: The Chinese data is the latest in a series suggesting the factors weighing on the global manufacturing sector may be easing. However, the extent to which activity can recover, in China and elsewhere, is likely to hinge on US trade policy.

Japan: Government launches measures to boost growth

  • The Japanese government announced a number of policies designed to support the country’s economy including repairs after the recent typhoon, improvements to infrastructure and investment in research and development.
  • Omnis view: The Japanese markets will welcome these measures which are more powerful than expected and should stimulate the domestic economy.

LOOKING AHEAD - TALKING POINTS

Economic data

  • Tuesday- Chinese inflation rate in November; UK economic growth in October;
  • Wednesday- US inflation rate in November.

Monetary policy

  • Wednesday- Federal Reserve interest rate decision;
  • Thursday- European Central Bank interest rate decision.

UK general election

  • UK voters go to the polls on Thursday, and the result should be announced early on Friday morning.

 

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This update reflects Omnis’ view at the time of writing and is subject to change.

The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your Openwork financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given.