The week that was might just have been the most market significant seven days of 2019:
· Trump (actually Robert Lighthizer) closing a new Nafta trade deals with Mexico and Canada, plus and a truce with China could well prove the highpoint of his presidency. A number of commentaries reckon he’s simply closed down fights of his own making with few tangible gains. Not so – Trump has hit a reset button on Trade.
· The lessons to be learnt from Boris Johnson’s overwhelming UK election victory will reverberate round markets – especially in the US, where this week’s likely impeachment will make the Democrats profoundly short-term happy, and pretty much ensure they lose the Nov 2020 election.
As we go into the last few trading days of the year, it feels a more settled market awaits. The UK is massively up on the back of the election, and trade truce takes a dose of risk off the table. Everything fine then? Not for long I suspect – three years of Brexit uncertainty has left permanent damage to the economy, Scotland will remain a festering pustule for the new Government to deal with, the EU is still there, and trade will continue to dominate news flow. China may have agreed to import more agri-products from the US, but Lighthizer has admitted there is a huge amount still to do – and the deal isn’t signing till January.
Trade skirmishes will continue – and even escalate, especially in Tech. One example is China warning Germany not to join the US effective blockade of Huawei. If Germany excludes the Chinese 5G wireless gear, China will threaten car imports – which is Germany’s weak spot.
Watching Andrew Marr interview Labour’s Number 2, John McDonnell on Sunday Morning was an illuminating moment. McD stuck to the view Labour’s policies were popular and Jeremy Corbyn a great and wise leader – the only reason they lost the election was Brexit. Sell-delusion at its finest – everyone else has figured it out. The UK electorate is middle ground – they want politics, politicians and policies they can relate to. The Tories got that – hence they locked away Rees-Mogg right at the start of the campaign.
The lesson is for the Democrats – gather round a middle ground leader, or you face a similar electoral bruising in 2020. All Trump has to do is let the Democrats beat themselves in the primaries, waste their energy with impeachment, and keep suggesting that Biden is somehow dishonourable because he, Trump, had to ask foreign governments to investigate him!
However, the story of the day may be the Wall Street Journal – Boeing Weighs Suspending or Cutting Back 737 Max Production.
It’s scary stuff – the narrative has been moving against Boeing for months now. They tried to pretend the problems with the MCAS control system could be easily fixed. They tried to pin two crashes and 346 deaths on pilot error. They tried to tell the market the planes would soon be reapproved. In recent weeks the Federal Aviation Authority has “admitted” it let Boeing self-regulate. Now the FAA is saying the timing on recertification is going to be longer.
The aircraft maker can’t afford to keep making planes it can’t deliver and get paid for. Extended delay has got enormous implications for airlines – that are haemorrhaging money as a result. Will a recertification early in 2020 help? Probably not – few airlines will now want the 737 Max, and Boeing recently lost orders for its new 777x. It needs a long term fix – new modern aircraft types, which will take buckets of new money (which it doesn’t have, having spent all its money on stock buybacks) and loads of time. Still reckon the likely outcome is a restructuring of the company next year!
Bill Blain is a well-known City of London commentator, and has 35 years’ market experience as an investment banker. He currently is Strategist at Shard Capital, a London-based boutique.