By Jan Faure
Global markets were in the green in October except for the UK where Brexit grabbed headlines.
The Brexit saga (or soap opera) continues. It is three and a half years since the Brexit referendum and October 31st was meant to be the final leaving date. That date has come and gone. British PM Boris Johnson had managed to negotiate a new Brexit deal with the EU, however Parliament decided more time was needed to properly evaluate the deal before voting on it. This meant the EU needed to, and did, grant another extension (to 31 January 2020)
Boris Johnson has now secured a national election on December 12th. Johnson hopes that his Conservative Party will win with a majority, thereby removing any chance that his Brexit deal can be blocked or stalled in parliament. If one of the opposition parties win, a second referendum would be on the cards. Another distinct possibility is a post-election parliament as divided over Brexit as it currently is.
The main sticking point throughout the negotiations has been the problem of Northern Ireland. It has been imperative that Brexit avoid the creation of a physical border between Ireland and Northern Ireland. This would severely threaten peace and likely reignite the IRA. Johnson’s new deal effectively keeps Northern Ireland closely aligned to the EU, while the rest of the UK will have its own distinctive economic relationship with the EU.
The US Federal Reserve cut interest rates for the 3rd time this year to help the US economy in the face of lower global growth. The rate cut was precautionary and meant “to provide some insurance against ongoing risks”. Unlike most of Europe, the US economy has been is good shape with unemployment near a 50-year low, inflation moderate and GDP growth holding up well.
October’s trade talks between China and the US yielded a truce with China agreeing to buy American agricultural products and the US ditching a planned tariff increase on Chinese imports that was set for mid-October. The deal has been called a “phase-one” agreement which implies that there may be a phase two agreement. That may be seen as a positive, however nothing has been signed as yet. Furthermore, there is no agreement to scale back existing tariffs so current negotiations are about preventing further escalations. As a reminder, the US grievance with China centres around accusations of intellectual-property theft, forced technology transfers and complaints about Chinese subsidies.
Slowing global growth along with perceived greater global risk (due to the trade war, Brexit and Middle East unrest) has led global bonds yields to record lows. An estimated $15 trillion worth of global debt is currently offering negative yields. Lower yields have boosted equity valuations. Year to date the MSCI World Index is up 18.6%.
GLOBAL INDICATORS: Local reporting currencies