Market Commentary & CNBC Interview

Tavistock Wealth - 8th January 2020

It’s a big step forward for the future of global trade with the signing of Phase-One of the trade deal on the 15th of January.

US-China Trade

The talks have dragged on far too long and both sides stand to gain with this initial part of the agreement. Falling Chinese exports and discontent in the mid-west farm belt mean President Xi and President Trump need to get stuck into Phase-Two as quickly as possible. I expect that the second part of the deal will be completed in the run up to the US Presidential election in November. A comprehensive final agreement is vital for Trump’s re-election chances.

US Elections

Next year’s US Presidential election is very important for the global economy because of the pro-business/growth policies implemented by President Trump. The Democratic challengers have stated that they will change direction and raise taxes, curtailing one of the longest growth cycles for many generations. Another 4 years of Trumponomics will promote further economic expansion in the US, pulling the rest of the world along with it, especially once a final trade agreement with China has been concluded and the ratification of USMCA.  A Trump victory will underpin the equity market for a further 1-2 years, adding another 15-20% to the current bull market. A victory for the Democrats, especially Elizabeth Warren, would end the bull market, causing a 15-20% correction.

UK

Both domestic and foreign investors have shunned UK equities since the EU Referendum, but this is likely to change in 2020. The “Get Brexit Done” mandate won by Boris Johnson has significantly reduced the cloud of uncertainty that has lingered over the UK. Investor confidence is now in the ascendancy. The political paralysis that has been traumatising the UK since June 2016 has finally been lifted. The Conservative Party’s majority of 80 seats, the biggest since Margaret Thatcher’s third victory in 1987, means that the newly elected Government will now be able to move forward at pace with Brexit, as well as implement a range of domestic economic programs such as increased spending for the NHS. International asset allocators are now looking at the UK for the first time in many years, and this will be the catalyst for a significant rally in sterling and UK equities.

2020 Outlook

Looking beyond the recent escalation of “short-term” geo-political tension in the Middle East, the outlook remains favourable for risk-assets such as equities and commodities but remains negative for bonds. A return to QE in the US and in Europe will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite EM equity markets are China, Taiwan, Russia, Mexico and Brazil. Gold remains cheap given the low level of interest rates and provides an effective hedge for any pull back in equities. Most government bond markets (developed) are grossly overvalued and offer little protection from either the return of inflation or a move to fiscal stimulus.

US-China Trade

The talks have dragged on far too long and both sides stand to gain with this initial part of the agreement. Falling Chinese exports and discontent in the mid-west farm belt mean President Xi and President Trump need to get stuck into Phase-Two as quickly as possible. I expect that the second part of the deal will be completed in the run up to the US Presidential election in November. A comprehensive final agreement is vital for Trump’s re-election chances.

US Elections

Next year’s US Presidential election is very important for the global economy because of the pro-business/growth policies implemented by President Trump. The Democratic challengers have stated that they will change direction and raise taxes, curtailing one of the longest growth cycles for many generations. Another 4 years of Trumponomics will promote further economic expansion in the US, pulling the rest of the world along with it, especially once a final trade agreement with China has been concluded and the ratification of USMCA.  A Trump victory will underpin the equity market for a further 1-2 years, adding another 15-20% to the current bull market. A victory for the Democrats, especially Elizabeth Warren, would end the bull market, causing a 15-20% correction.

UK

Both domestic and foreign investors have shunned UK equities since the EU Referendum, but this is likely to change in 2020. The “Get Brexit Done” mandate won by Boris Johnson has significantly reduced the cloud of uncertainty that has lingered over the UK. Investor confidence is now in the ascendancy. The political paralysis that has been traumatising the UK since June 2016 has finally been lifted. The Conservative Party’s majority of 80 seats, the biggest since Margaret Thatcher’s third victory in 1987, means that the newly elected Government will now be able to move forward at pace with Brexit, as well as implement a range of domestic economic programs such as increased spending for the NHS. International asset allocators are now looking at the UK for the first time in many years, and this will be the catalyst for a significant rally in sterling and UK equities.

2020 Outlook

Looking beyond the recent escalation of “short-term” geo-political tension in the Middle East, the outlook remains favourable for risk-assets such as equities and commodities but remains negative for bonds. A return to QE in the US and in Europe will add another leg up to the record setting equity bull markets, with sizable gains in emerging markets as they play catch up to the rest of the developed world. A weaker US dollar will also support emerging market equities and local currency debt markets. Our favourite EM equity markets are China, Taiwan, Russia, Mexico and Brazil. Gold remains cheap given the low level of interest rates and provides an effective hedge for any pull back in equities. Most government bond markets (developed) are grossly overvalued and offer little protection from either the return of inflation or a move to fiscal stimulus.

LISTEN TO THE INTERVIEW ON CNBC BELOW:

This investment Blog is published and provided for informational purposes only. The information in the Blog constitutes the author’s own opinions. None of the information contained in the Blog constitutes a recommendation that any particular investment strategy is suitable for any specific person. Source of data: Tavistock Wealth Limited.

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