DCN September Edition 2019

GLOBAL TRADE & MARKETS
Update on international markets
and trade wars
Paul Bettany takes a combative look at the state of international markets
and the factors driving them
THE US/CHINA TRADE WAR HAS
prospects. It is in reaction to these threats
continued and has driven the fear scale
that central banks are reverting back to
north, hitting global growth prospects.
‘dovish’ monetary policy. The reversal
Central banks have anticipated the hit to
in monetary policy by the Fed and other
their own economic growth prospects and
Central Banks have crashed global bond
acted accordingly. The RBA has been the
yields and sparked a huge rally in equities
leader of the pack and was quick off the
and investment.
mark, after the re-election of the Liberal/
National Coalition government. They
CENTRAL BANK ACTION
cut a record twice in two months in an
The Federal Reserve halted their
effort to stimulate flagging economic
quantitative tightening policy and resumed
growth. This, however, has undermined
neutrality calling for ‘patience’. The Fed
the currency, although rival central bank
is expected to cut rates over the next cycle
conformity to loose monetary policy, has
in reaction to global growth threats and
mitigated the losses.
under huge pressure from the White House.
President Trump is a major opponent of
US/CHINA TRADE WARS
tight monetary policy and has waged a
The US/China trade war has continued
Twitter war against the Federal Reserve,
unabated, although there have been
their policy and Chairman Powell.
Paul Bettany, director, Collinson & Co
interruptions in the negotiation process.
Central banks around the world are
The Chinese and the US have been involved
expected to employ monetary stimulus,
AUSTRALIAN SCENARIO
in intense and comprehensive negotiations
over the next cycle, which will stoke the
The surprising re-election of the Liberal/
to arrive at a broad-based, inclusive
fires in a new emerging currency war. The
National Coalition brought some certainty
agreement. The negotiations were close to a
rivalry between central banks and their
back to the economy and provided a boost
conclusion until it hit a big problem, Huawei,
actions will drive global currencies. The
to a challenged housing market. The seas
which seemingly crashed the process.
US domestic economy remains strong, so
may be calm, but the economy is under
President Trump warned western nations
fundamentals probably point to a rising US
serious threat, with global growth concerns
not to select Huawei as a 5G provider as it
Dollar, despite rate cuts. The British Pound
hitting the trade exposed economy.
is a subsidiary of the Chinese Communist
may suffer some short-term volatility, but
The ongoing US/China trade war is
Party, giving the Chinese access to all the
the ascension of Boris Johnson and the
upsetting the supply chain and beginning
recipient country telecommunications. This
prospect of more certainty, should enhance
to impact the domestic economy. Economic
is a security issue and Trump imposed a
its prospects.
growth is sluggish and is manifesting
technical supply embargo on Huawei. The
itself in the form of economic data. The
Chinese reacted immediately and called off
EUROPEAN UNION
RBA has been quick to act. This should
negotiations. This derailed the talks and
The European Central Bank has little
encourage investment and hopefully stave
it was not until the Tokyo G20 meeting
option but to stimulate the European
off recessionary pressures. It does not assist
that they resumed. Presidents Trump and
economy with accommodating monetary
the Australian Dollar, with the only saviour
Xi attended the meeting and an interim
policy, but interest rates are already at
possibly coming from the actions of the
agreement was reached. China agreed to
virtually zero, thus limiting their influence.
Federal Reserve.
increase US agricultural imports, while the
They can increase liquidity, but this will
To avoid currency volatility, exposed
US agreed to partially lift the embargo on
probably end up in a state of flux if we look
companies need to employ orthodox risk
Huawei and suspend any tariff increases
at the Japanese experiment for a historical
management techniques, to ensure pricing
until a deal is reached.
lesson. The currency will remain under
certainty. Currency risks can be managed
Trade negotiations are ongoing, but are
highly complex and comprehensive. The
impact of these trade wars are far reaching
and threaten global trade and growth
pressure and any extended trade war may
expand to a US/EU trade impasse, which
could seriously threaten the very existence
of the union.
effectively, by accurately forecasting
foreign currency cash flows and mitigating
the risks, with effective and available
management tools.
Collinson & Co
22 September 2019
thedcn.com.au