• Marcus Brookes
  • 20 December 2019
  • 10 minutes

Since January of this year, investors have been on a roller-coaster ride of hopes and fears relating to international trade, Brexit and general elections. This unusual confluence of confusion has made it extraordinarily difficult for anyone to know what to expect. Relations between the US and China have blown hot and cold. The US in particular was quick to convey frustration with its Chinese counterparts. A tit-for-tat exchange of increased tariffs ensued alongside accusations of shady activities among high-tech companies such as China’s Huawei.

With the world’s two largest economies swinging handbags at each other, global trade levels were inevitably reduced. As well as hampering economic growth in China and the US, this had a marked effect on other nations.

Germany, the powerhouse of the eurozone economy, flirted with recession as its large manufacturing sector struggled to cope with increasingly nervous customers and investors. Taiwan’s dominant technology industry supplies tech giants such as Apple and Microsoft, making it vulnerable to the prevailing mood. Throw in some anti-Beijing political unrest in Hong Kong (supported by the US Congress), and you have a heady cocktail of unpredictable sensitivities.

The effects were sufficient to persuade the US central bank, the Federal Reserve, to reverse its policies. It moved from raising interest rates in 2018 to lowering them three times in 2019 in order to stimulate borrowing, spending and economic growth.

It had a sporadic effect. Stocks in the US hit record highs in spring, summer and autumn as helpful central bank policy coincided with rising hopes of a trade accord between the US and China.

In between times, investors were down right morose as global growth seemed to evaporate, while politicians seemed unable to resolve problems, often of their own making.

As a result, investors watched stock prices skyrocket one month, then saw them plunge and be replaced by rising bond prices the next month.

Eventually, in December, it seemed that we finally had some closure. The US and China appeared to agree a preliminary trade deal, the eurozone’s central bank projected a less difficult outlook, and Boris Johnson romped home in the UK’s second general election of the year, affording him the ability to push his Brexit deal through.

But no sooner had investors celebrated the new clarity by sending stock prices up to another set of record prices and bond prices sharply lower, than reality kicked in again.

The South China Morning Post spoke for many when it cautioned of the “huge challenge” that China faces in meeting its new trade obligations. Germany’s manufacturing recession appears to be frustratingly difficult to shake off.

And let’s not forget that old chestnut, Brexit. In 2016, the World Economic Forum collated some data on how long it takes for two countries to negotiate a new trade deal[1] . Among the 20 most recent trade deals that the US had negotiated up to 2016, the shortest time between the beginning of negotiations and signing the deal was four years. The shortest amount of time between starting negotiation and implementing a trade deal was 18 years. Mr. Johnson is allowing 11 months. If a deal is not completed by December 2020, we could be facing a no-deal scenario again.

Hang on tight for another trip on the roller-coaster.

[1], accessed December 2019.

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