Weekly View - Abe's hidden arrow
Opec members met with oil-producing allies in Vienna last week to talk 2020 oil pricing strategy. Given the downward price pressure on oil from slowing global growth and increased supply from US shale, Saudi Arabia urged its oil producing peers to cut output further. Discussions went late into the evening on Thursday and on Friday the agreement for deeper cuts to prop up oil prices was reached. We stay positive on the energy sector.
Trump tweeted trade last week, starting with the announcement of renewed steel and aluminium tariffs on imports from Brazil and Argentina in the wake of the recent depreciation of their currencies. Not for the first time, Trump’s trade hostilities flirt with a currency war. Next up the president’s administration proposed new 100% tariffs on up to USD 2.4bn worth of goods from France. The alleged offense: French digital services tax unfairly discriminate against US tech companies. The broader EU dodged no bullets either, with the US now looking at broadening a range of tariffs on EU products because of its illegal subsidies to Airbus. Retaliation was quickly declared. The excitement continued after Trump commented to reporters that a trade agreement with China could be postponed until after the 2020 US elections. Markets rode a roller coaster of volatility, a theme we like to play in and of itself as spikes of this nature show no sign of abating. Our recent put option purchases will also protect portfolios should a trade deal not come through.
Japanese prime minister Abe announced a massive fiscal stimulus plan, just two months after Japan’s VAT increase. The spending package, Japan’s first since 2016 and one of the largest since the global financial crisis, suggests that a version of Modern Monetary Theory will start in Japan, as governments take advantage of ultra-low interest rates to boost spending in support of their fragile economies. We favour Japan and other markets that are direct beneficiaries of such fiscal stimulus. Looking ahead, the UK elections will be this week’s headlining act, as Brits head to the polls on Thursday to elect their new leaders and shed new light on the direction of Brexit. Many central banks will also hold their final meetings for 2019 this week.