LAST WEEK – KEY TAKEAWAYS

UK: Parliament backs Brexit withdrawal bill, but uncertainty returns

• The Prime Minister secured a comfortable parliamentary majority for his Brexit withdrawal bill which means the UK will leave the EU on 31^st January 2020;
• The pound weakened against the US dollar as the legislation prevents Mr Johnson from extending the transition period, so a ‘no deal’ Brexit remains a possibility if the UK and EU fail to negotiate a free trade deal before 31^st December 2020;
• There was further bad news for the pound when the Bank of England left interest rates unchanged and withheld judgement on how the latest Brexit developments might affect the economic outlook.
• Omnis view: The Prime Minister is following through on his campaign pledge to ‘get Brexit done’ by passing the withdrawal bill, although he has left a relatively tight window to negotiate a free trade deal. Whether he is prepared to leave without a deal at the end of 2020, or he believes the deadline will give him leverage during negotiations, remains to be seen.

US: Economic and trade optimism boost shares

• US shares hit new record highs thanks to optimism about trade relations with China and the domestic economy;
• President Trump tweeted that the US and China were getting close to signing the first phase of a trade deal, while economic growth was revised up in the third quarter and consumer spending increased in November compared with October.
• Omnis view: Despite the charges brought against President Trump for alleged abuse of power- known as impeachment- US shares appear to be on course for their strongest annual performance since 2013. While the impeachment headlines grab a lot of attention in the mainstream media, it looks highly unlikely that the Republican controlled Senate will vote in favour of the motion.

Trade: Trump to target Europe next?

• US official Robert Lighthizer said President Trump is ready to turn his attention to what he called a ‘very unbalanced’ trade relationship with Europe now that the initial deal has been agreed with China.
• Omnis view: Lighthizer suggested President Trump could resort to using tariffs- taxes on goods imported from abroad- to address the trade imbalance, which may lead to a new spell of global economic uncertainty. The EU has also recently been discussing trade relations with China.

Europe: Manufacturing activity falls again

• There was bad news for the EU economy as activity in the region’s manufacturing sector fell for the eleventh month in a row.
• Omnis view: The easing of trade tensions between the US and China should buoy export heavy European economies like Germany, although the prospect of US tariffs on the EU could offset this effect.

LOOKING AHEAD - TALKING POINTS

Economic data

• Friday- Japanese unemployment rate in November.