Bassanese Bites: Sell the fact? – December 16 2019
Two major market concerns appear to have been resolved over the past week, with US President Trump concluding his “phase 1” deal with China and the UK Conservatives romping to victory and making certain the UK’s “soft exit” from the EU. That said, with this expected good news largely anticipated and priced into markets over recent weeks and months, global equities could barely flicker higher on Friday. The question now is whether this is really a case of “buy the rumour, sell the fact”?
While a period of consolidation/profit taking may well face equity markets for a period, my view is that there is still good news that could allow markets to trade higher over 2020. For starters, provided that Trump does not feel compelled to jack up tariffs against China next year, business uncertainty should ease and trade and investment start to recover. As regards trade, my sense is that while the US will continue to negotiate with China next year, Trump won’t dare raise tariffs – the only issue is whether the tariffs that still remain (which are America’s bargaining chips) will eventually fall back or remain in place. As regards Brexit, while the UK still needs to negotiate a free trade agreement with the EU, the heat in this issue for global markets and UK business in particular should soon dissipate.
The Fed also left rates on hold last week and signalled – in line with my expectation – that it now sees rates as on hold over 2020. That should remain the case provided Trump does not antagonise China again (which would see lower rates) or US wage/price inflation accelerate (which would see higher rates). I don’t expect, but would view the latter as the more serious market impediment.