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
Related Insights
Daily Brief – Time to get a Thesaurus
Charles Porter
Tue 4 Feb 2025
Time to get a Thesaurus Removing tariffs just as quickly as President Trump thought to impose them is surely removing any elegance associated with Trump’s ‘favourite word in the dictionary’. On second thoughts, there likely never was any. In the two weeks that have passed since the President’s inauguration the tariff story goes something like […]
Daily Brief – Reckoning Days
Charles Porter
Tue 14 Jan 2025
Reckoning Days Despite it being less than one week until Donald Trump’s inauguration, markets are still fixated on the evolution of the UK’s bond market and its currency. The Chancellor may well have been hoping for some distracting headlines from the incoming President-elect. Unfortunately for her, those that have come from the Trump administration and […]
Daily Brief – ECB Up Next
Charles Porter
Thu 30 Jan 2025
ECB Up Next Despite traders continuing to keep a keen eye on the actions of President Trump, the European economy will begin to command attention for the remainder of this week. Having taken a breather on his squabble with Columbia over the weekend, the newly inaugurated President’s attention will turn to Congress. Less signing, more […]
