- US-China Tensions revisited
As mentioned in various reports across the year, US-China tensions, which mainly surrounded trade deals, had been postponed pending the 2020 US elections. This will be the crucial time for us to see if Biden will be tough on China which will set the tone of how the world views Biden and the US vs China, especially now. This will have massive implications for the rest of the West, especially Australia, who currently have their own tensions with China right now.
The Chinese economy is expected to do well, so that means AUD should do well, but there might be a damped effect amid the Aussie-Sino tensions, though that hasn’t deterred Aussie.
- More Innovative Healthcare Solutions from Biotech
- More Exponential Growth for E-commerce
- International Equities Return to Prominence
We’ll see much growth in specific sectors in the equity complex, which in turn will have implications for the USD, and proxies such as JPY, AUD and EUR. Of course, I understand many of you are reading that big stock crashes or booms are coming soon, which is a great time to remind you that the stock market is not the economy.
The key here is the flows. Think of FX like the waterpipes; money has to leave investor pockets to go into equities; it has to leave equities to come back into cash. If there’s lots of demand for a particular country’s equity, then expect the country’s currency to rally.
- Fiscal paradigm/Biden effect
By the time President-Elect Biden is officially inaugurated we will have a clear idea of how powerful the Biden effect will be as the Senate run-offs will be over, i.e., will the Liberal Democrats have more influence in the Senate, or will the Republicans retain influence. Just a reminder, more fiscal policy means lots of government spending, indicating a weaker USD.
Now that Brexit is out of the way, the big thing is to see what will happen. Many in the fishing industry feel sold out as the UK could in essence phase out EU fishermen then choose to ban them in 5 years from British waters. The idea is who will form trade deals with the UK, what is their plan and vision?
Let us not forget; they are still in the transition period. The deal still needs to determine what happens with financial services which are pivotal. This will be a crucial year for the UK while managing the COVID crisis in their nation.
As I outlined in many reports, copper and oil have been rising, indicating an inflationary scare for real products. While it is doubtful interest rates could increase (it will make it hard for companies to access capital), it is something central bankers may consider unless the laws of supply and demand kick-in. However, should Biden allow Iran to export oil, that should theoretically lower the price of oil (more supply = lower price).
Though, that could lead to some issues which OPEC+, which is an article for another day!