December 18, 2019 - Financial Occultist

As the US and China look to wrap up the Phase One trade deal, the European Union has got to watch its back next

Merkel Macron Trump

Although Trump may be largely preoccupied with the US election next year, the temporary ceasefire in US-China trade relations will free up some of his time to focus on other agendas – at least during the early portions of next year.

As such, one key issue that he has yet to seriously address or escalate is the supposed “trade imbalance” that the US has with the European Union. This is something that he has been going on about for quite some time now already:

He has already revealed his intentions recently as he lambasted French president Macron and even threatened tariffs on $2.4 billion worth of French goods. After all, he is a tariff man.

But that’s just the smaller part of the equation. The biggest offender of this “trade imbalance” is not France, but Germany instead.

Germany sits among the top four nations that the US has the largest trade deficit with, and now that Trump has addressed the trade situation with the other three nations (China, Mexico, Japan), they will be up on the chopping board next.

As such, if Trump starts to deal with the European Union in the same way that we have seen the US-China trade war develop, this could arguably be one of the major risk factors for the euro and euro area assets as we look towards next year.

With the German economy barely staying afloat this year, a trade war is the last thing that the country needs. Hence, any nascent signs of an economic recovery may be offset against the backdrop of a looming trade war that could turn even uglier as the year goes by.

Given such a development, it would be hard for the euro to keep a more optimistic tone as this will also take away a key potential tailwind for the single currency in 2020.

Top foreign-exchange forecaster on H1 2020 – bull market for the USD not over

18-Dec-19 06:02 am

Anirudh Sethi

Jane Foley, head of FX strategy at Rabobank, is the highest rankled forex predictor in Bloomberg’s quarterly poll (July-September)

For the first half of next year:

“If I had to pick out one theme, it would still be the dollar”
“There’s a possibility the dollar holds stronger than what the market is expecting for the first few months of 2020 and then it weakens, but not as much as the market is anticipating.”

Via Bloomberg, but curiously, found it here at yahoo)

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yeah, it may be too early to write off the US dollar.

Fitch says phase 1 US-China trade deal alone unlikely to eliminate uncertainty

18-Dec-19 05:49 am

Analysis

Anirudh Sethi

Whole stack of no s**t Sherlock statements from Fitch here:

phase 1 deal will not resolve US corporates’ trade concerns
phase one US-China trade deal alone unlikely to eliminate uncertainty given prolonged phase two negotiations on structural issues
Fitch, on US corporates says renewed escalation of US-China tensions remains a significant risk
says a ‘phase one’ US-China trade deal may only provide limited benefit for US technology companies

All the disruption for the sale of a few more soybeans to a country that would have bought more anyway. And yeah phase two will be an even bigger debacle.

Fitch Ratings affirms UK at ‘AA’ – highly likely UK leaves EU with an agreement on Jan 31 2020

18-Dec-19 05:47 am

Analysis

Anirudh Sethi

Fitch says given the election result it means the UK is highly likely to bbb Brexit on January 31 next year.

Rating AA
Outlook negative on view that uncertainty regarding the future UK-EU relationship will persist for some time

Cable is ambling along not too far from its US session low

S&P issues revised outlook for UK, to stable. Ratings affirmed.

18-Dec-19 05:38 am

Analysis

Anirudh Sethi

S&P says UK outlook revised to stable; ‘AA/A-1+’ ratings affirmed

UK’s conservative’s newfound majority should clear passage of withdrawal agreement bill through parliament, diminishing risk of no-deal Brexit
expect that the UK will ultimately seek an extension to the transition period beyond December 2020
also revised to stable from negative outlook on the long-term rating on the BOE

BJ says he’ll take the UK out deal or no deal, and no extension. At odds with what S&P expect