Last week was marred by negativity at several levels. Everywhere you turned it looked like there was a Negative Nancy…
Government Shutdown 2019, 2.0
Negotiations throughout last week were making little to no headway. Making the likelihood of another shutdown seemingly inevitable (by now seemingly averted). Washington has until February 15th in order to keep the unfunded portion of the government running.
US, China Trade Talks
Late last week it was announced that President Trump and President Xi may not meet in February. It was likely not scheduled due to a deal being far from done. As of March 1st, the US will probably raise 10% tariffs to 25% on $200B in goods from China. Trade talks are going on this week in China, however, little is expected from the low-level talks.
UK, EU Exit Negotiations
Little to no progress is being made on the Brexit front. There is a promise by the European Union (EU) of technology that could handle the Irish border issue. Details are thin and the promise has been loosely offered. The UK is hoping to acquire an extension, which it will most likely need. An extension could lend itself to a new referendum. Now that the consequences of Brexit are better known, it would probably yield a different result than the original.
EU Growth Projections Reduced
The European Union (EU) has reduced their 2019 GDP growth from 1.9% to 1.3%. Much of which has to do with the Italian recession and the reduced growth expectations for Germany. Last month, Italy fell into a technical recession (two consecutive quarters in the red). German forecasts for GDP and manufacturing have been reduced as of late. Automobile exports to the US, as tariff concerns have been mounting, have caused some of the growth adjustments.
Conclusion
The week was fraught with geo-political tensions rather than US earnings losses. In fact, 4th quarter earnings are trending to a 13% growth rate. Geo-political winds can change in a heartbeat and they need to, but the gathering clouds are cause for long-term concern.
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