Three Big Factors
There are three big things that have seemed to cause uncertainty in the markets the last two years. Those include the trade war, Brexit and the Fed. We received a lot of good news on all three of these last week. In regards to the trade war, the phase one deal agreement was made. This went into effect as of yesterday. Of course we have phase two which includes intellectual property but hope that comes along soon. Boris Johnson won the UK election so that will hopefully clear a path for Brexit that has been an issue for years now. Lastly, Fed chairman Powell said he does not expect the Fed to have to raise rates for all of 2020.
UK & Europe
Boris Johnson being elected in the UK is enormous news. This will directly impact not only European markets but the American economy as well. This was the largest conservative party win since 1987 for the UK. This results included 365 Conservative seats compared to the Labours 203 seats. This will dictate how trade between Europe and the UK as well as between U.S. and the UK will be effected moving forward. Boris Johnson’s Conservative party should lead these trade talks. Also, in 2016 Brexit was such a big headline because the UK was supposed to be the big first domino of many to leave. So, if Great Britain is able to leave and their economy is not greatly affected, we might see some more countries follow. We believe there is some more clarity in the UK and U.S. including trade and more uncertainty in Europe. It is interesting to look at the map of the results of the UK election. Blue, which represents the conservative party, lights up the election. However, an interesting thing to look at is the yellow in Scotland which consists of a number that’s 45 of 59 seats. This represents the Scottish National Party which is an independent party. This pops out to us because we are curious if this is any indication of Scotland leaving Great Britain. This should be a debate for 2020 and possibly going into 2021.
North American Trade Talks
The U.S. and Mexico trade agreement should pass through the House this week and possibly pass through the Senate in early 2020. This is a quicker pace than anticipated. We keep speaking of China but that only consists of 18% of our trade. Trade with Mexico makes up 30%, which is much larger. In addition to the fact that the USCMA looks good on the face, the template and design look very good as well. Six provisions of this design is something we can possibly take to other countries to form trade agreements with. We have been in this fog with China around 14 months now. This has led to around a 1% annualized GDP. If relief starts to come in this area, we could see ourselves really take off in other places within the economy.
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