Populism Slows as Economic Realities Bite

  • Trump softens stance on key domestic and foreign issues
  • Brexit jitters continue to rock Britain and the EU
  • Russia quietly scores double win in energy diplomacy

Weighty political and economic developments that had an impact on the global markets unfolded over the last week with significant ramifications that set the pace for business this week. 

US Looks to Upbeat 2019 Despite Biting Economic Data

In the US populist President Donald Trump dampened political tensions and cooled jittery markets by announcing that a second government shutdown was unlikely, and his administration would seek a compromise regarding its desire to allocate funds for a border wall with Mexico. The announcement came as markets continued to recover from the 35-day shutdown that last from early December 2018 to late January, causing a significant drag on the economy. With the February 15 budget deadline close, the president had to either sign a proposed appropriations bill to avoid another shutdown or fight for his wall and face unforeseeable consequences. Trump also hinted at a possible extension to the March 1st deadline on China – US trade talks that could avert a tariff war between the two biggest global economies. His remarks had the effect of buoying markets across the globe as investors banked on the positive sentiment to keep pushing thelimits. However, by February 15th, the negotiations were yet to yield positive results and will continue into the new week. Analysts believe China may get more than expected in the talks as the presidentshifts his focus to domestic issues ahead of his 2020 re-election bid whose campaigns are likely to begin later this year. Unfortunately, dismal economic data from various government departments also came out in the same week, indicating that retail sales plunged significantly towards the end of the year into January, probably attributable to the spending shutdown that hobbled the US economy at the time.

EU’s Engine Sputtering On the Brink of Recession

In Germany, the biggest economy in the EU and regional pacesetter accompanied the poor US results with lackluster returns as fourth quarter results turned up 0% growth, the second worst in the zone, barely escaping a recession. The poor showing that might have an impact on the larger euro zone is attributable to American tariffs on German steel and other major exports such as cars and auto-parts. Germany is also in the cross-fire between the US vs. China trade standoff that is now a subject of trade talks.

Brexit Stalemate Continues as Deadlines Loom

In the UK, Prime Minister Theresa May’s populist Brexit plans suffered another humiliating rejection in parliament on February 14th as she sought to protect Britain from exiting the EU without a deal on March 29th. Hard-line Tory MPs spearheaded the defeat by abstaining from the vote, determined to cut all ties with the EU when the exit deadline at the end of March arrives. Strangely, the FTSE 100 continued to climb despite the depressing political developments that will have an immediate and major impact on the British economy if the EU does not extend the exit deadline. The index rose from 7129 at the beginning of the week to close at 7239 by February 15th, defying expectations and remaining bullish throughout all sessions. These developments came as senior executives of the Bank of England’s monetary policy committee announced that Britain is losing up to £40 billion a year due to the Brexit fears translating to approximately £800 billion a week in shrinking GDP. The Prime Minister is scheduled to present another plan on February 27thin an effort to avert the looming crisis that her MPs are eagerly pursuing.

Russia Reaps as Others Bicker

The troubles in the UK and Germany came as their neighbor Russia continued its energy diplomacy, cutting oil output and pushing forward its plan to build the $9.5 billion Nord Stream 2 natural gas pipeline to feed Germany and the Euro zone. The Eurasian country cut its production by 47,000 barrels per day in compliance with an OPEC/New producers deal that seeks to shore up low oil prices. By Thursday February 14th the prices had risen 2.2% to hit a three month high of $55.6 per barrel as anticipated. At the same time Germany joined hands with France in Brussels to weaken tighter EU regulations that would have created obstacles and prevented Germany from importing as much natural gas as it wants from Russia. Analysts have criticized the compromise plan that won support from member states of making the EU more dependent on Russian gas while cutting transit fees for Ukraine.

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