The biggest news on the financial markets today is the signing of the phase-one trade agreement between the United States and China. After over a year of negotiations and back-and-forth exchanges of aggressive new tariffs on each other’s goods, the two countries have finally managed to find some common ground and formalize it in an official document.
This development has had a resoundingly positive impact on the markets. Risky assets such as the euro and the British pound have surprisingly recovered against the dollar, while safe havens such as the Japanese yen and gold continue to drop.
Nevertheless, it’s worth noting that this agreement will not end the trade war. Many tariffs remain in place. These will likely be used as leverage in continued negotiations with China, as the core issue of Chinese companies’ handling of US intellectual property, as well as the call for economic reforms in China remain. The United States is not likely to back off until this issue is resolved, not even after this year’s US Presidential elections, as even Democratic presidential candidates are beginning to talk about in their campaigns.
In Europe, today it became known that Germany’s economic growth dropped to its lowest since 2012, largely due to Brexit and the trade war. However, the country also recorded a substantial budget surplus in 2019. The ECB might ask Germany to use the surplus as an injection to accelerate growth in the German economy.
The United Kingdom is also suffering the aftermath of the Brexit developments, showing that inflation is decreasing, currently hitting its lowest level in three years. To fix this, an interest rate cut by the Bank of England seems more and more certain.
