The stock market had quite a strong week. Friday before last week was shaky with Trump adding tariffs of 5% on all Chinese goods. Followed by a lot of dramatic and very bearish news articles about what would happen on Monday. When everyone is so negative, very bad news is quite often priced into the markets.
And yes, we ended Monday with a plus. During the week we had more upticks. The trade war tensions between the US and China calmed down a little bit. China had indicated that they want to go on with the negotation talks and that these talks should aim at removing the tariffs. China also said not to retaliate on US latest tariffs. It is nice that they say that. Markets like it. But things can turn very quickly here as we have seen before. The last time China retaliated came a couple of weeks after new US tariffs. By then China also said that they have many more options to fight the US if needed.
So the conclusion of this week is that the markets do follow quite literally what the US and China say every day and do not take into account that much of these words might not mean a lot anyway. So I do not think that much changed over the week. Thoough the markets were quite bullish and making back the losses of the week before.
Value stocks seem to be turning around slowly. Want to read more about it? Check the stock opportunities.
Brexit developments
Boris Johnson said that the UK is definitely going to leave the EU on the 31st of October 2019. Ofcourse he needs to be clear on this and cannot go into negotiations with his parliament and the EU with showing any doubts. According to Betfair and what I have been reading the chances of not leaving the EU on that date might be somewhere around 50%.
As always in Politics, negotiations always take very long and are not easily done.
Moreover, the chances of a No-Deal Brexit have gone up recently and according to the betfair markets are now somewhere around 40%. JPMorgan came yesterday with the expectation of 35%. So a very reasonable scenario.
Important issues for the UK (in case of No-Deal)
When going to the supermarket you will see quite some products to be more expensive or not available. Nearly 30% of all food comes from the EU.
Travelling to Europe becomes a pain, some medication might me not available, UK people living abroad need to take extra measures, house prices might be affected, etc.
On the short and medium term it is a massive pain. On the longer term there might be benefits as the UK can make their own trade deals with countries like the US. They probably get a ‘GREAT’ deal if we may believe Mr Trump. Good to know is that any deals made can not be implemented in the first 21 months after leaving the EU. So the economy might really get a short/medium term shock. So can the Pound and the big financial industry in London.
Important issues for the EU (in case of No-Deal)
Countries in the EU trade a lot with the UK. The problem with a No-Deal Brexit is that costs will rise due to more custom controls, extra tariffs and increased costs in the supply chain. Costs will be higher and things will cost more time. For countries with quite some import and/or export to the UK, this will have a significant effect on their GDP.
Not everything is Trumps fault, its Brexit!
This already appeared by looking at the German GDP in the second quarter which was -0.1%.
When the number came out analysts were initially thinking it was due to the trade uncertainty regarding the US and China and also (potential) US tariffs against Europe.
German exports to the US actually jumped compared to last year. German exports to the UK fell with 15% year-on-year and has been causing the GDP to go negative. The Brexit uncertainty is most likely bringing Germany into a recession.
