A look at the 3 key factors impacting markets in US, Asia, and globally: the US-China trade war, the US government shutdown, and Fed rate hikes. What are your risks and opportunities?
US-China Trade War
Key issue: dispute on tariffs of goods. US allegations of unfair trade practices, and theft of intellectual property (IP).
Current situation: key negotiations Jan 30-31 in Washington. Deadline until March 1 to work out structural changes for a deal.
Possible outcome: package of deals which are extensive, in-depth and detailed with China buying more US products, and taking steps to curb IP theft. Positive talks outcome will likely cause markets to rally in relief.
US Government Shutdown
What’s happened: partial shutdown of non-essential operations and federal employees being furloughed (on involuntary leave of absence).
Key issue: Trump wants US-Mexico border wall built but Democrats refuse to approve funding.
Current situation: hopes of an extended prolonged dysfunctional shutdown hopefully averted. Talks of further hiking the debt limit, and possibility of Trump invoking a state of national emergency to obtain funding. Deadline of February 15 to prevent another shutdown.
Possible outcome: compromise of sorts with barriers put in certain places and surveillance as a “virtual wall”. Some compromise to allow protection of undocumented young immigrants. Trump viewed as unlikely to allow escalation that the US Treasury is unable to pay its bills leading to a financial crisis, government defaults, spikes in interest rates, and a market crash.
US Fed Rate Hikes
What’s happened: 9 interest rate hikes since normalisation began in 2015 with 4 of the hikes occurring in 2018. Trump has been at loggerheads with Fed with accusations of undercutting economic growth. However, Fed focus is on the overall economy and not the stock market. With that said, Fed has softened tone at the end of 2018.
What’s ahead: 2 rate hikes instead of 3 expected in 2019, and possibly 1 rate hike in 2020.
Possible outcome: Fed has stated will be data dependent monitoring global economic and financial developments and access their implications in making decisions. The next hike is likely going to be towards the 2019 2H. Markets generally positive of slowing rate hikes but concerns on an economic and market downturn remain at the back of mind.