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Are we nearly there yet?

For many readers, this question will produce flashbacks to long car journeys and bored children but it may become a question investors start asking.

There is increasing evidence that the global industrial production cycle is turning more positive and this appears to be the most likely outcome going forward. However, this still does require some sort of trade truce possibly combined with tariff roll backs as well as reduced Brexit uncertainty.

China – US Trade Latest

On trade, things felt a little shakier this week and markets were a little softer because of this. The U.S. Congress voted to send a bill supporting Hong Kong protesters to President Trump, who is expected to sign it, setting up a confrontation with China that could imperil the long-awaited trade deal. The bill would require annual reviews of Hong Kong’s special status under U.S. law and sanction officials deemed responsible for human rights abuses and undermining the city’s autonomy.

15th December is the new unofficial deadline for signing a Phase 1 deal as this is the date when additional tariffs on Chinese imports will be implemented. So, whilst it is likely that such a deal does get over the line, a new hurdle has just been put in its way.

UK Election Campaigning Reaches Crucial Stage

On Brexit, new polling is still putting the Tories ahead by some ten points. The latest data from regional surveys suggest the Tories are doing rather well in Scotland, which is surprising compared to what was widely expected some 3-4 weeks ago. The next two weeks of campaigning will be crucial but if the Tories can hold on to their lead then a Tory government is probable, likely leading to less uncertainty on Brexit.

Trump Impeachment Trial

One additional market worry did become more acute this week. Until this week, the impeachment proceedings against Donald Trump had failed to capture the imagination of the country and were not particularly in focus for investors. However, the testimony of Trump’s ambassador to the European Union, Gordon Sondland, may have change that. As widely reported, Trump is accused by Democrats of pressuring Volodymyr Zelensky, the newly elected president of Ukraine, into announcing probes of the business dealings of Hunter Biden, whose father, Joe Biden, is one of Trump’s potential rivals in the 2020 election. If Democrats voting to impeach the President was highly likely before Sondland entered the hearing room, it looks to have become a near guarantee after he left.

According to the Financial Times, Mr Sondland told Congress that Mr Trump wanted Ukraine to announce probes into his domestic political rivals. In a nod to the original cause of the scandal Mr Sondland also believes that military aid to Ukraine was withheld to the same end. One key piece of Trump’s defence remains intact: none of the witnesses, including Sondland, testified that the president himself directly ordered them to make explicit to the Ukrainian administration that American military aid depended on their president announcing investigations.

Of course the Senate, which is controlled by Republicans, is still more than likely than not to vote against finding Trump guilty of any wrong doing but the stakes, along with potential uncertainty on this matter, certainly increased this week.

© 2019 GWM