Last week has been an important week for the stock market. Two main topics have been adressed in a positive way: the UK elections and the trade war between the US and China.
UK elections & Brexit
Boris Johnson won the UK general elections by a landslide on Thursday. He gained a massive majority in the UK parliament. He should easily be able to get the Brexit deal, that he made with the EU, through parliament. The stock market was happy with his victory and so was the Pound.
The chance of a hard Brexit has really diminished now and companies that deal with the UK will feel a relief and can actually focus again on the long term business activities.
Going forward, in the upcoming months/years there will be a transition period in which will be negotiated how the Brexit will be dealt with. For example, there have to be trade agreements between the UK and the EU. Next to that, the UK gets all the freedom to make own trade deals with other countries like the US. On the longer term this Brexit might well work out very nicely for the UK.
Trade war Phase 1 deal
The US and China have agreed on a so called Phase 1 trade deal. New tariffs that would start on the 15th of Dec are being halted but the previous 25% tariffs remain. In return China has agreed to some structural changes and large purchases of mainly agricultural goods. This de-escalation of the trade war helped the financial markets move up. Trump and China also agreed to start the negotiations on a Phase 2 deal very soon.
Lots of market uncertainty gone
With Boris Johnsons victory and the trade war Phase 1 deal, quite a lot of concerns on the world wide economy have disappeared. With money being very cheap and geopolitical risk diminishing, stocks do have more upside potential.
Trump will probably not take much risk going forward and needs the economy and stock market to do well running into the US elections in November 2020. The upcoming 6-9 months are expected to be months with lower volatility and interesting returns.
