By Jan Faure
Brexit, US-China trade deal, Coronavirus, WWIII – January got 2020 off to a rocky start.
So much has happened the last few weeks that we’ve all but forgotten about the early-January US assassination of Iranian military commander Qassem Soleimani. Fortunately, the threat of “World War III” was averted as both sides stood down. It became quickly apparent neither side had the appetite for war. US President Trump certainly doesn’t need one in an election year and he already has his impeachment process to worry about.
After a lengthy wait, President Trump signed the “phase one” US-China trade agreement that represents a truce in the long-running trade war between the two global superpowers. As part of the deal, China committed to increase purchases of US goods and services by more than $200 billion over the next two years. China also made commitments to curb intellectual property theft and copyright infringement. The deal was well received by markets despite the fact that major existing levies still remain in place and unchanged. The positive takeaway from the deal was that it halted the seemingly never-ending escalation in the conflict.
The UK has officially left the European Union, three and a half years after the Brexit vote and bringing to an end 47 years of membership to the EU. The UK will now enter an 11-month transition period during which it will continue to follow EU rules and laws. The work certainly is not done for the UK government. Now begins the complex task of negotiating favourable trade deals with many regions and countries.
Rounding out the month has been what markets call a “black swan event”. This is defined as an unpredictable event that is beyond what is normally expected and has potentially severe consequences. The most notable recent example was 9/11 when two planes flew into the twin towers in New York. No one could have predicted this event, which had a significant impact on markets and the world.
The coronavirus is a black swan event. It is a flu-like virus which emerged in Wuhan city in China. The virus has spread rapidly and has, just as rapidly, alarmed markets over its potential impact on global growth. Cities like Wuhan remain in virtual lockdown with travel severely restricted, and China is facing mounting international isolation due to restrictions on flights to and from the country. Cases are being reported in the US, Japan, Thailand, Hong Kong and Britain.
China’s essential role in the global supply chain means business owners and executives around the world are being forced to contemplate what will happen in a prolonged crisis. The fear is that, because symptoms can appear as late as two weeks after infection, it will have staying power. Its impact is already disrupting many businesses globally due to the shutdown in Wuhan, which is regarded as a booming manufacturing region.
As it stands, many airlines are cutting flights, not because of fear of contagion, but due to lack of passenger bookings. Starbucks and McDonalds have temporarily shut hundreds of outlets in China and many hotels and theme parks are closed or empty. The direct effects on China and knock-on effect on other countries, due to the pause in manufacturing and lower consumption, could become costly quite quickly. What’s evident is that the virus is adding another layer of complexity for businesses that were just beginning to breathe a sigh of relief over trade tensions.
GLOBAL INDICATORS: Local reporting currencies