Hedley Market Commentary - December 2020

Market Commentary – December 2020

By Neil Worsley, Investment Strategist

So it is farewell President Trump and hello to President (elect) Joe Biden; but what are the major changes to look out for under the new president and how might these impact financial markets.

On indirect financial matters, the new president is likely to be much more conventional in his approach, which will make international financial markets much happier as this brings with it more predictability and stability. On Iran, there are signs that the US will re-enter the nuclear agreement, albeit with some bolstering of conditions. On NATO and environmental issues there is also likely to be a more cohesive and coordinated approach with established international partners as the US re-enters the ‘fold’ and reasserts some much needed global leadership.

It should be said that US equity markets enjoyed incredible returns under the Trump administration (until Coronavirus hit of course) with his enormous fiscal stimulus package and business friendly approach, it could not have been much better. However, a Biden presidency is unlikely to repeat this largesse as he seeks to bring a more balanced approach between main street and Wall Street. There are likely to be tax increases on wealthier citizens and some decrease in taxation on the less well-off but this of course is somewhat dependent on control of The Senate, which is still in doubt. Effectively, this is turning off the stimulus tap of which Trump was an advocate. However, in the very short term, we could well see a covid stimulus package of around $2tn although this is not so much a stimulus as a rescue package.

The technology sector could also be in the sights of President Biden as, like many other countries, he sees this as a way of increasing taxes on a healthy growing and under taxed segment of the economy. This will also make it easier for other governments to tackle this issue without the potential threat of retaliation as happened before.

On China, while Trump would dearly have loved to have made inroads into rebalancing trade with the blunt instrument of tariffs, his ‘go it alone’ policy was never likely to succeed and despite severe trade threats, this policy has proven to be a wasted opportunity and only brought about periods of equity market volatility to no useful end. Biden, on the other hand, could well be more of a thorn for China as he seeks a multilateral approach through more traditional institutions which could prove much more effective and have a more significant outcome on both trade and the environment. Russia is also likely to be on Biden’s agenda as he seeks to re-establish a coordinated approach to ‘interference’ in international matters.

Finally, tariffs and the threat of increased usage has been a real issue with Europe. A Biden presidency is not likely to completely take the pressure off Europe in terms of trade, however, and there could be bones of contention as well as points of common interest. However, the end of the Trump administration all but eliminates some tail risks for the next few years at least. In particular, there was a possibility that Trump would follow through on his threat to impose tariffs on EU auto exports. Yet, an expected return to more traditional U.S.

International economic policy will be very welcome in Germany which is strongly committed to multilateral cooperation and organisations and is also strongly opposed to protectionist policies.

This is general market commentary from our analyst and should not be interpreted as personal advice to you to make an investment decision

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