Weekly View - The art of the phase
Phase one of the US-China trade deal is set to become official in a signing ceremony attended by both sides in the US on Wednesday. This interim agreement suspends the tariff escalations that were planned for last October but maintains those on USD 250bn of Chinese exports to the US. Markets have celebrated this development since it was first announced late last year. Beyond trade, the US is contending with a particularly marked discrepancy between its manufacturing sector, which is in contraction territory and its services sector, which remains in expansion mode according to ISM business surveys. We are positive on China, whose economy should benefit from its monetary and fiscal easing policies in addition to any trade resolutions.
Entangled in a dispute of another nature, the US and Iran seem to have reached a stalemate, avoiding further escalation in hostilities for now. Meanwhile the US House of Representatives has approved a motion to prevent Trump from taking further military action in Iran without approval from Congress, although the Republican-controlled Senate is unlikely to pass a parallel one. Crude oil prices, which momentarily spiked in the wake of Trump’s airstrike that killed General Soleimani, have dropped back to mid-December levels. Our central scenario on oil remains unchanged. We believe the main driver of oil prices in 2020 will be the risk of oversupply, but that prices could face significant volatility due to geopolitical tensions.
Last week the Swiss National Bank announced it expects to realise a CHF 49bn profit for 2019 – thanks to the foreign bonds and stocks it purchased to keep a lid on the Swiss franc’s appreciation. Not a bad side effect – particularly following the CHF -15bn loss it made in 2018. Farther east, Saturday’s general elections in Taiwan delivered a resounding victory to the incumbent President Tsai Ing-wen. Her pro-independence stance solidified her support in the wake of Hong Kong’s pro-democracy events. This puts Beijing in a tricky spot given its insistence on the “one country, two systems” model for Taiwan.