Taking the acclaimed title of Oxford Dictionaries word of the Year 2012, “Omnishambles” is a word which is normally deployed in relative proximity to a photograph of the former Foreign Secretary and Vote Leave figurehead, Boris Johnson. To my mind today, it’s an appropriate one-word encapsulation of global politics. The general decay in health and cooperation on the global stage frames the wider picture that we see in markets: highly valued safe haven assets, cheap emerging markets, amidst rising volatility.
The bleak impression created by the world’s political economy is undoubtedly down to a core set of big issues, let’s call them magnashambles. The first that springs to mind is the Trump administration’s war on trade. Overnight the White House upped the ante on trade, proposing a series of tariffs on $11bn worth of EU exports. Whilst the value of EU goods in the firing line of Trump’s protectionist politics is only a fraction of the value of Chinese goods already experiencing the tariffs, the White House’s move threatens a European Union struggling with Brexit negotiations, weak growth and forthcoming elections. What happens when you threaten a cornered animal..? I suppose it depends upon the beast.
The proposals overnight hurt risk sentiment, exacerbating the trends of overvalued safe havens, cheaper emerging markets, and rising volatility. Defensive Dollar demand in reaction to the threat to global trade has remained limited in good part due to the limited value of goods affected and sanguine words of US trade representative Robert Lighthizer who was forthcoming in suggesting the United States’ aim was sustainable resolution. Treading lightly is perhaps the best policy given that the EU’s subsidies to aerospace champion Airbus were the centre of attention and a primary justification for the move despite and only last month the World Trade Organisation reiterated that the States’ own subsidies to Boeing were similarly illegal.
If the tariffs gain traction, we could reasonably expect a weaker Euro, increase in defensive US Dollar demand and further weakening of emerging market assets. More magnashambles for another day.
Back to Westminster, where the House of Lords yesterday passed Yvette Cooper’s deal, reducing the risk of a no-deal Brexit on Friday. The three Ms, May, Merkel and Macron, will meet later today ahead of tomorrow’s European summit where they will discuss the UK Prime Minister’s request for a Brextension. Sterling continued to rise against the Dollar overnight with limited progress against the Euro while investors wait to see what life-lines the summit might bring an ailing UK premier.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Onto June A slew of strong US economic data over recent weeks had boosted expectations for how the culmination of the Fed’s two-day meeting would be presented to the public last night. The story goes back further. The narrative dominant in late-2023 of a US economy in need of restrictive monetary policy was unavoidable. The […]
Germany and the EU The Germany Supply Chain Act came into force in 2023 as a result of Germans wanting to do something good for employees in other countries in particular with respect to human rights and environmental issues. So far so good. But a combination of cost and bureaucracy overlaid with the difficulty of […]
Emergency Stop In the early hours of trading on Monday morning, sudden and significant buying pressure within USDJPY has markets wondering: is this the signal that local authorities are taking another stab at active market intervention? In a critical week for FX, with central bank decisions and a slew of top-level economic data from across […]