A ‘Phase One’ trade deal is causing markets to rejoice, but the U.K. is still on the hook for Brexit

December 17, 2019
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“Money is good for nothing unless you know the value of it by experience”
― P.T Barnum

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  • Bitcoin $6,740
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  • British Pound $1.31
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  • Australian Dollar $0.684
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An End to the China-US Trade War in Sight With Phase One Adoption

It’s the day we’ve all been waiting for… Phase One of a new U.S.-China trade deal has finally been signed. This is the day markets have been dreaming of ever since U.S. President Donald Trump began to threaten tariffs on the world’s second-largest economy. The Dow is up 100 points since the news was announced on Friday, while the S&P has grown by 51.5 points. Let’s take a look at the latest market response to the news.

Markets are set to end the 2010s in high spirits: With the end of the decade just weeks away, markets can cap off the past ten years with record highs. And governments are happy too – China saw the IMF revise its growth expectations for 2020 upwards, as the phase one trade deal relieves pressure.

Holidays mean that traders are heading home for the winter: Traders can rest easy with the lessened volumes expected for the last few weeks of 2019, meaning the likelihood of a disaster wiping out gains this close to New Years is a very unlikely possibility

But, this isn’t the end of the road: Despite market optimism and a generally good year for equities, this phase one trade deal doesn’t mean that the U.S.-China trade war is over. There are still going to be U.S. tariffs on Chinese goods next year, on the majority of imports. So expect the trade war to dominate headlines into the new decade as well.

Wut We Think: It’s hard to be negative at times like this, with record highs on all the big indices capped off with what looks to be the start of the end of the trade war. And at least until the end of the year, that optimism is warranted – so sit back, relax, enjoy the holidays – and watch as we cruise into a new decade.

 

Pound Rallies Following U.K. Election But Brexit Still Looms Large

The worst has been avoided...but the pound still has little to root for even with an election result that’s seen it gain 3.2% versus the U.S. Dollar. Those gains were short-lived, however, with the pound falling back to $1.31 as the recently re-elected Tory government doubles down on its Brexit promises.

So traders are still uncertain about Britain, right? They are, despite some leftover optimism from the Conservative Party victory. The pound is well above the $1.20 low in August, but signs like weak manufacturing numbers may be a sign of things to come. 

So it’ll still fall? Yes, and soon. The pound sterling has already lost much of what it made against the dollar following the election, and further bad news – such as the government’s hard Brexit pledgewill likely push it down further.

Is there any good news for the U.K.? There is at least one positive sign – unemployment remains low, and employers are still hiring – but this is far out shadowed by the risk of the dissolution of the United Kingdom itself if the government sticks to its promise to ‘get Brexit done.’ 

Wut We Think: Anything good that may have buoyed the pound sterling up for the past few days is quickly vanishing, and retracing the post-election rally is nearly a guarantee at this point. There’s always the off-chance that investors will seize this hyped piece of news and ride that higher – but with a clear majority and mandate to implement Brexit once and for all, it seems hard to see that possibility. 

 

Trading Spotlight: Tariffs

Tariffs are one of those topics that you’ve probably learned about in school during history class, but with the continuation of the U.S.-China trade war, they’ve been very topical. Tariffs can affect trading in various ways: companies affected by tariffs will see decreased business, resulting in lower valuations and stock prices. While companies that adapt, or are used as an alternative, tariffs will most likely see their prices rise.

Tariffs: Tariffs are a form of tax imposed by a state on goods imported from another state. This tax is paid to the government by the importer – not the exporter. This makes tariffed – foreign – goods more expensive, and makes domestic alternatives more attractive to buyers. Tariffs are usually used by governments to correct real or perceived trade imbalances or to prop up the domestic business. 

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