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It was another big year for the global financial markets that culminated in a phase 1 trade agreement and assured Britain’s departure from the EU. It was also another year of record highs for the U.S equity markets, with the NASDAQ crossing over to 9,000 levels.
The European majors also found support, with the EuroStoxx600 hitting record highs in the final weeks of the year. Following the Dow Jones’s worst Christmas Eve on record in 2018, 2019 was a better year as the U.S and China managed to close out a phase 1 trade agreement in the run-up to the Christmas holidays. U.S President Trump remained at the epicenter of global events through much of the year, which ultimately favored the bulls.
There were numerous events that influenced the financial markets in 2019, however, with some roiling the global financial markets more than others. As the markets prepare for a New Year and a new decade, the most notable events were:
The U.S – China Trade War
Undoubtedly the key driver throughout the year, delivering a rollercoaster ride for the safe havens and riskier assets. Mixed messages from the U.S. administration had the markets on tenterhooks until the final month of the year.
A phase 1 trade agreement between the U.S. and China was announced, driving the U.S .equity markets through to record highs. Supporting riskier assets, it was just what the markets needed going into the holiday season.
We can expect more of the same next year, however. While a phase 1 agreement is expected to be signed in early January, the U.S and China will then move onto phase 2 of negotiations. How willing China will be to meet more of Trump’s demands remains to be seen, but talks are unlikely to deliver a quick end to the trade war. Tariffs certainly hurt the global economy, with trade data in key markets reflecting the impact of punitive U.S. tariffs.
Brexit and ‘The General Election’
While not as influential to the global financial markets as the U.S – China trade war, Brexit continued to influence. In the year, a second Prime Minister’s term came to an abrupt end. Brexit did revive Boris Johnson’s political career in style, however. Not only did Boris Johnson manage to renegotiate a Brexit deal and pass it through Parliament, but he also managed to win a December General Election with ease. Britain spoke for the 2nd time and once more voted in favour of departing from the EU.
Over the course of the year, we saw the GBP slide to a year low $1.19583 in September before striking a year high $1.35149 in December. The December high came in response to the Tory’s largest General Election majority victory since Thatcher’s heyday.
Since that day, however, Boris Johnson’s intentions on Brexit have been made clear. An amended Brexit Bill that prevents Britain’s transition period from extending beyond December 2020 led to a pullback in the Pound. As the year comes to an end, the Pound is set up for more volatility going into the New Year.
Trade negotiations between Britain and the EU will be the key driver. The EU and Pro-Remainers have voiced their concerns over the limited amount of time to negotiate an agreement. For Johnson and the Brexiteers, enough is enough. The EU dragged its heels over the last few years and will likely attempt to do so again.
The Hong Kong Riots
The HK Riots certainly drew plenty of attention and tested risk appetite through the 2nd half of the year. In the summer, few would have expected the riots to extend through to November. Even fewer would have anticipated the HK Bills that passed through both houses on Capitol Hill with ease.
The Rioters not only managed to reverse an Extradition Bill but also gained the support of the U.S government. In terms of timing, Trump’s signing of the HK Bills came at a delicate time, with the U.S and China on the cusp of a phase 1 trade agreement. While China did react to Trump’s decision to sign the Bills, it didn’t result in a collapse in trade talks that many had feared would result. For the Hang Seng, the impact of the HK Riots and uncertainty over trade weighing through the summer.
The Middle East
Tensions in the Middle East flared once more in 2019. Tankers were attacked and Iran was also accused of involvement in the shooting down of a U.S drone in Yemen. This was then followed by the shooting down of a U.S drone in Iranian airspace. The U.S reciprocated by shooting an Iranian drone in the Strait of Hormuz.
All of this came as Iran recommenced parts of its nuclear programme that it had ceased before the U.S withdrawal from the nuclear agreement.
If Iran was looking to test Trump’s patience, Saudi oil refineries came under attack in September. Crude oil prices spiked as a result of the attacks that led to a more than 50% fall in production.
The U.S and Europe did not take military action while concluding that it was an Iranian strike.
In December, the U.S President became only the 3rd president in history to be impeached. The Democrats eventually delivered the blow after months of uncertainty. While it is history in the making, the markets were relatively calm, with the Republicans unlikely to oust their President. While the impeachment had no major impact on the global financial markets, it may affect Trump’s chances of a 2nd term in office, however.
The FED and Monetary Policy
From the U.S, we saw the FED hit reverse on its move towards policy normalization. Inverted yield curves had raised the threat of an imminent recession. FED Chair Powell and the team delivered in a timely manner. The U.S saw a growth of 2.1% in the 3rd quarter.
While the U.S President didn’t get his wish of zero rates, the global financial markets responded well to the reversal that contributed to the record highs seen in the U.S majors in December.
Boeing fell foul with the grounding of its Boeing 737 MAX planes. This came after a number of crashes that resulted in the suspension of production and the resignation of CEO Muilenburg.
Facebook also faced the ire of Capitol Hill as it looked to enter the crypto sphere. Facebook announced plans to launch LIBRA that would facilitate payments via what’s App and Facebook messenger. The news impressed few, however, with the dust yet to settle from the 2018 hack. The personal data theft led to a pretty hefty fine. In July, U.S. Regulators fined Facebook Inc. $5bn for data protection violations.
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