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Markets Brace for Trump’s “Big, Beautiful Monster” | Poor Inflation Could Force BOE’s Hand

Published January 15, 2020
  • Today’s the day that US President Donald Trump and Chinese Vice Premier Liu He are set to formally sign off on the phase one agreement, which Trump has called “a big, beautiful monster”.  What we know is that the deal will revolve around a pledge from China to purchase an additional $200 billion worth of US goods over two years, but we don’t know is how the deal will be enforced.  Markets will eagerly await the full details of the agreement but are already preparing for some disappointment, especially after yesterday’s comments from US Treasury Secretary Mnuchin that the deal will not include any further reductions to US tariffs on Chinese goods.   Mnuchin mentioned that the tariffs are likely to remain in place unless a phase two deal can be reached quickly, but given that we are headed towards a US election this year, it’s tough to imagine either side making big enough concessions to get a deal done anytime soon.
  • UK inflation numbers fell to 1.3% annualized in December, its weakest since November 2016.  With a few BOE members already turning dovish, and economic data dwindling, markets are now treating a BOE rate cut as a matter of when not if.  The pound has little change on the news since much of this has been priced in, but downside risks remain as long as Brexit clouds continue to hover over the United Kingdom.