 | AUTHOR: Jason J. Roque, CFP®, APMA® TITLE: Investment Adviser Rep – CCO TAGS: Trade, Geo-Politics |
2019 was a strong year that closed with little tension to speak of. 2020 opened with immediate escalation. What does it mean for the markets?
Trade Tensions
According to President Trump a signing of the Phase on trade pact is set for January 15th. Phase 2 negotiations are believed to be beginning this summer in Beijing. The removal of this piece of uncertainty, while moderate in content is a relief. Mainly because it reduces the prospect of further escalation.
China improved liquidity by lowering reserve requirements last week. This move is accommodative and should stimulate lending in the economy. These efforts should help spending coming from the region. If so, global manufacturing and commodity prices should improve.
Geo-Political Tensions
The US launched a strike early Friday that killed Iranian General Qassem Soleimani. This sparked an equity sell off and an upward tick in safe haven assets such as the Yen and Gold. The fear of retaliation in the form of attacks or the closing of the Strait of Hormuz are feared in the short-term.
Not to be outdone, North Korea had to make some noise. They have announced that they no longer have to abide by the denuclearization pact with the US. It is expected that we should hear of more long-range missile tests and nuclear bunker tests in coming months.
Conclusion
Seemingly with trade tensions abating the true concern at this point is geo-political tensions. An escalation with Iran could impact energy prices, corporate costs, and ultimately corporate profits. A spike in geo-political risk, however, carry short-term implications to market losses, and can often create good buying opportunities.
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