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Commentary on financial markets – January 2020


  • Escalating tensions between Iran and the US
  • signing of a trade agreement between China and the US


The first month of 2020 has been incredibly rich and varied in exchange rate events. However, the negative factors outweighed the positive ones and virtually all major equity markets lost ground with the exception of Australia, which benefited from the dampening of large-scale wildfires and rose in anticipation of the next high investment and spending on damage repair. The price of crude oil fell by almost 12% to a final USD 58.16/barrel of Brent crude. The likelihood is increasing that the oil cartel will intervene and try to curb oil production to reduce supply and stop the price decline.

This year started with escalating tensions between Iran and the US. First, Iran attacked US-led allied forces in Iraq. Iran fired more than a dozen ballistic missiles from Iranian territory at two Iraqi bases with troops of the US-led coalition. The Pentagon confirmed that the targets were the Ayn al-Asad air base in central Iraq and a base in the Kurdish city of Irbil. Fearing a retaliatory attack by the US, Iran then managed to inadvertently shoot down a UIA Ukrainian Airlines transport plane, killing all 176 people on board.

In the middle of the month, China signed the first part of a trade deal with the US in Washington. The agreement includes a section on intellectual property protection, a commitment by China to buy at least $200 billion worth of goods and services from the US over the next two years, and a commitment by China not to manipulate its currency. If China violates the agreed rules, the US can re-increase tariffs already in place or impose new ones. Otherwise, no. Despite the agreement, however, tariffs remain in place on a total of USD 360 billion of Chinese goods. It is speculated that these tariffs could be reduced or eliminated in the future if the current agreement is upheld and extended to include even more contentious items such as cyber theft and China’s unchecked use of subsidies.

Another rate-setting factor associated with China is the spreading coronavirus contagion. As a result of this, global equities have also fallen, particularly those of airlines and travel companies. However, it is very likely that the viral contagion will have only a very short-term impact on the markets.

Then, on the last day of January, the United Kingdom formally left the European Union. Brexit became a reality. The UK will comply with the EU rules for one more year, after which it will leave the EU for good. The only positive thing for the EU as a whole is that this is the end of a period of speculation and uncertainty. It is now definitively clear that the British will go their own way.

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