The Events That Moved the Markets in 2019
- Brexit agreement to affect British Pound
- Trade wars may cause starts and fits in global markets
- Federal Reserve currently on hold
- 2020 likely to resemble 2019, but less volatility going forward
2019 was a very difficult year for a lot of traders. The volatility was off the charts at times, and then it would suddenly stop, confounding market participants. It seemed at times like the market was hanging on to every headline in various sectors, and we even saw a few wildcards thrown at it more than once. Looking back at 2019, there are some major events and risks that took place. Let’s take a look at what moved the markets in 2019 and where we stand now as we bring 2019 to a close.
Brexit
Just as we have seen over the last couple of years (ad nauseaum), Brexit was one of the main drivers of volatility. The British pound got pummeled throughout most of the year, but towards the end, it started to see a bit of a resurgence. With the Tories firmly in control and Boris Johnson at the helm, it looks as if Brexit will finally happen.
Now that there won’t be an extension, headlines will still move the British pound for the next few months but in the end, we should finally see a resolution during 2020. Going forward, any signs of a “hard Brexit” will probably hurt the British pound, but only offer nice buying opportunities later on. The British pound is historically cheap against the greenback, and therefore could see a nice surge higher with an actual trade agreement with the European Union.[/box_quote]
While we are waiting to see whether it will be a “hard Brexit”, or if there will be an agreement, it will be more of the same for the GBP. However, with a united British government, this certainly puts the spotlight on a lot of cracks in the European Union. As a result, by the end of 2020, the British pound will more than likely be worth much more than it is now.
Trade wars
The President of the United States has been on a rampage when it comes to trade tariffs and fixing trade agreements globally. Whether it comes down to automobiles coming out of the European Union, steel coming out of Canada and Brazil, or everything coming out of China, Donald Trump has not hesitated to pick a fight.
That being said, it looks as if the Americans and the Chinese are starting to become a little bit more conciliatory when it comes to signing the so-called “Phase 1 deal.” It’s very likely that the easy stuff will be signed off; the Chinese are simply agreeing to buy what they desperately need as the swine flu has decimated the Chinese pork industry.
As we head into an election year, Donald Trump may or may not go forward with a lot of hardball tactics. This will almost certainly put a spotlight on European automotive companies because that is probably the less dangerous play he has ahead. There will be a continued negotiation with China obviously, but it is very unlikely to get “Phase 2” done between now and the election. Unfortunately, trade war negotiations will probably continue to cause starts and fits in global markets. However, the effect of these headlines and Tweets are starting to become less drastic. In that sense, 2020 should be a bit easier to deal with from a volatility standpoint.
Federal Reserve
Going into 2019, the Federal Reserve was expected to raise rates three times by most analysts. By the time we got to the end of the year though, the Federal Reserve had in fact cut rates a couple of times. As things stand going into January, the Federal Reserve is on hold, but it is currently throwing money hand over fist into the repo markets. This in and of itself is a form of quantitative easing, and with the soft economic numbers that have been coming out of the United States as of late, the Federal Reserve will be looked at very closely for signs of rate cuts.
That being said, it is likely that the Federal Reserve will wait to see what effect the more conciliatory tone between the United States and China has on forward-looking economic figures such as capital expenditures and hiring. It does look like the Federal Reserve will probably be one of the biggest stories for 2020, especially when it comes to the precious metals market which has shown a lot of strength going into Christmas.
Precious metal markets
Precious metals markets will probably be relatively strong, based upon uncertainty from a longer-term standpoint with the trade wars, and any signs of weakness out of the Federal Reserve. Central banks around the world are in fact involved in quantitative easing, so overall that will be good for those markets, especially denominated in other currencies.
The main take away
The main take away from the high impact events in 2019 is that they probably will subside a bit in their influence, but the reality is that they will all still be there in 2020. The closer we get to the November election in the United States, the less likely we are to see a lot of headlines rocking the markets from the trade war situation. By then, Brexit should at least look like it’s about to be solved if in fact the British haven’t signed some type of trade agreement.
By the end of the year, it’s very likely that you will see a general shift in the attitude of the United Kingdom and whether or not they got the better half of the deal.
In the end, 2020 will probably be very much like 2019, although not nearly as drastic when it comes to volatility. Several of the issues are working their way through the process but aren’t quite solved as we flip the calendar.