Eq: Dev ex-US
New data on the EU economy has just come in and it isn’t pretty. Overall, the bloc grew just 01% in the fourth quarter, while Italy and France actually contracted. According to Commerzbank, “The spectre of recession is back … Economic growth in the eurozone came to a virtual standstill at the end of the year . . . The ECB is likely to view this with concern”. Ironically though, this may be positive for market as the ECB is likely to take an even more dovish approach.
FINSUM: It feels like we just did a time warp back to around 2013, when central banks were ready to stick to ZIRP for years. We all know how stocks performed then!
After three and a half years of chaos, it is finally going to happen—the British people are going to get a chance to vote on Brexit. No, it will not be in the form of a second referendum, but rather in the form of a general election. After fighting the option for months, the Labour party has been forced to give in to a general election that will pit Boris Johnson against Jeremy Corbyn, and likely decide the future of Brexit. No date has yet been set for the election, but it looks very likely to be in early December.
FINSUM: The trick of this election is that Brexit is probably going to happen no matter who wins because even top Labour leaders actually want the UK to leave.
In what can only be described as an act of both extreme patience—and hope for a better outcome—the EU has yet again agreed to extend the Brexit deadline from October 31st to January 31st following the big failure of Boris Johnson’s most recent deal in Parliament. The difference with this extension is that it has a caveat that if the EU and UK come to an agreement before January 31st, then the UK is free to leave in advance of the deadline.
FINSUM: The EU obviously wants the UK to leave on the best terms possible, and they are probably hoping Brexit gets completely reversed through an upcoming general election.
Well we are about three and a half years post-Brexit, and for most of that time, the situation only seemed to be getting worse. The UK was not only squabbling with the EU, but in the in-fighting in the UK was fevered. However, this week Boris Johnson has almost inexplicably agreed in principle to a deal with the EU. The big step from here is getting it approved by Parliaments on both sides.
FINSUM: All the details of this plan are not apparent yet, but that is frankly beside the point for a US investor. What matters here is that if the UK and EU can agree a deal, then markets will stop fretting about risk on that front.
American investors keep hearing the same warnings—Europe is slowing, and the malaise is coming for you! But in truth, how bad is the German, and EU economy really looking? The answer is that it is doing quite badly. The manufacturing sector has entered a recession in Germany (the bloc’s largest economy), and the central bank says the country is likely to enter a recession in the third quarter. A big test is going to come this week as numerous consumer data points will be released.
FINSUM: If the gloom has spread to consumers, a recession would appear to be inevitable. The market has sky-high expectations for ECB easing, so let’s hope they are met!
Trump’s tariffs are having a major impact on the US’ trading relationships. The data has been showing such, but now there is a very significant data point: China is no longer the US’ largest trading partner. Mexico has now assumed that position. The decline in trade with China comes alongside an escalating trade war that has seen tariff hikes and restrictions on both sides.
FINSUM: We are now officially of the position that this trade war with China will not be resolved any time soon, so this decline in trading seems to be the end of an era.