Rather frustratingly, it seems that many of the big themes set to dominate 2020 will really be an extension of the stories that took centre stage over 2019.
US-Sino Trade Negotiations.
With an initial trade deal in place, focus will now shift on to the second round of negotiations. The first trade deal is due to serve as a foundation for broader talks aimed at finally resolving the two-year long trade war.
The US has retained some of the existing tariffs on around $375 billion of Chinese goods with a view to ensuring that China complies with further negotiations. Given the difficulty in negotiations last year, however, talks are not likely to be quick or smooth. As such, there is plenty of downside risk for markets next year as talks will undoubtedly hit road-blocks.
Given that many of the much more controversial elements of US-China trade tensions still remain, such as handling of intellectual property and opening up of the market to US firms, there is still a great deal of work to be done and a fuller trade deal, if it does come, could take most of next year to secure.
However, there is two-way risk also, is talks move more quickly than expected and a deal looks likely to come sooner rather than later, this will obviously be risk positive.
Brexit Negotiations
With Johnson’s Conservative party holding a majority in parliament now, Johnson is likely to secure backing for his deal enabling the UK to finally go ahead with Brexit by the January 31st deadline and enter into a transition phase with the EU. The transition, phase, due to end in December 2020, is to allow for trade negotiations between the UK and the EU to establish the terms of future trade once the UK leaves the single market at the end of the transitional phase.
If talks progress well and a deal looks likely ahead of the deadline, this should keep Sterling supported over the year. However, with Johnson adamant that he December 2020 deadline will be final deal or no deal), there are risks. Given how long the Brexit deal took to agree, the prospect of trade terms being ironed out in 10 month appears very ambitious. As such, investor uncertainty, especially with regards to the business environment in the UK, is likely to stay elevated. If it looks as though a deal will not be completed, this could cause significant pressure on the pound due to capital outflow from the business and investor community ahead of the deadline which would essentially see the UK severing its trading ties with the EU and the single market without any terms in place.
Global Growth And Central Bank Policy
With the US-China trade war having sabotaged the global growth environment over 2019, man central banks which had either started tightening or were moving very close to beginning tightening, were ultimately forced to ease further. Among the G10 bloc, all central banks announced fresh easing last year, much to the dismay of central bankers which were trying to pursue policy normalisation ten years on from the global financial crisis.
Looking into 2020, there are some signs of lights. If the phase-one trade deal between the US and China can lead the ay for a fuller deal, reversing the tariffs of the last two years, this would be a massive boost for world trade and for the global growth outlook. While the first part of the year might still be rocky, such a development in line with a Brexit deal being delivered could pave the way for a pickup in global growth which might allow central banks to once again move away from easing and back into policy normalisation.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!