Early 2020 looks like it’s going to look much like late 2019.
The trade war between China and the US is alive and well at the time of writing. The same pattern of semi-truce followed by renewed tariff threats repeats every two or three months and there are few signs the pattern will be broken.
Actually, if we think about human psychology and how patterns become habits, it’s likely the same negotiating behaviour will continue into 2020.
The impact of the trade war on Oil prices may continue in the first quarter. Oil prices are undermined by fears that global demand for fossil energy will drop further if growth keeps declining. Small bursts of optimism or supply fears do their best to push Oil over $60 per barrel but trade war worries pull the Oil benchmarks back down into the mid-$50s.
Gold hit a plateau early in the fourth quarter but the precious metal’s tendency to rise rapidly on safe haven buying still holds true. The story of Gold’s rise may still make headlines in 2020 if the trade war isn’t definitively ended.
The same can be said of the Brexit negotiations.
It has to be said that these negotiations have been going on since 2016. Brexit has been postponed until January 31, 2020, meaning its impact is almost certainly going to flow over into the new trading year.
Brexit’s main impact is on the price of Gold, which inflates on the back of safe haven buying and fears over the future of the UK’s economy. And on the GBP, which struggles under a pile of uncertainty and opportunistic profit taking. The value of the GBP has diminished since 2016 and is likely to remain under pressure in early 2020.
US elections 2020 odds
Other financial trends which have the legs to walk into 2020 are the Forex traders’ reactions to upcoming elections in the US and UK. These elections come at what is possibly the longest period of extended uncertainty over global trade relations.
Trade war resolution?
Global stock markets are usually the first victim of political uncertainty. A change of government might be welcomed by those in the trading markets who are looking for an end to trade negotiations and disturbances in habitual market agreements like the European Union.
But what if the governments stay the same in the UK and US?
The answer lies in the question. Trade policies are also likely to stay the same. In this case, turbulent and long-drawn-out zero-sum negotiations. If that’s the situation, then the issues above will carry on into 2021, let alone 2020.
Forex fundamental factors
In the case that there’s a change of government and leadership, it’s not clear cut what could happen. The opposition in both countries appear to be focusing on politics as usual and overlooking economics and the financial wellbeing of their populations.
That may be understandable because not everyone is trained in the economic consequences of protectionism. But it seems reasonable to assume that if the opposition lands a win in the elections, they might take the opposing view on protectionism and revert to free trade positions.
Global growth slowing down
In any case, if the global economy keeps slowing, everyone will be forced to pay more attention to the economic issues in 2020, from traders to consumers and politicians. After all, nothing concentrates the mind like another financial or economic meltdown.