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A mandated Johnson’s coming to town (sing it)

A mandated Johnson’s coming to town (sing it)

An emphatic victory for Conservatives leader Boris Johnson confirmed exactly what many thought pre-voting – that the UK populace, weathered by years of uncertainty, were only going to the booths to set straight the Brexit decision they thought they made four years earlier once and for all. Johnson never really appeared concerned or challenged from the get go, owing such confidence to the foretelling BBC exit polls which embraced a landslide Tories victory as soon as voting closed.

This meant Sterling skyrocketed after the exit polls to a consensus 1.35, sustaining through the night a touch below those levels as an outright Conservatives victory became certain. FTSE also edged higher over the result. The goal now will be for Johnson to push through an orderly Brexit by Jan. 31, 2020 and decide how best to anaesthetise a hard Brexit; a situation that comes with its own set of challenges and could see medium-term gains to Sterling capped.

The art of the deal
Tacking on to the UK election, it was an eventful risk-on evening filled with rumours flying around that Trump had “signed off” on a deal delaying December 15 tariffs. This led risk assets across the board as S&P500 soared to near all-time highs, US Dollar index breached July lows and anti-risk USDJPY cracked multi-month resistance. Antipodean AUDUSD broke its 200d-MA – a major resistance point which had held up over 2019.

While these rumours may be true and positive for de-escalation, there’s been mixed reports surrounding the scant details of the agreement. Some sources close to the action suggest China have committed to 50bn of agricultural purchases, that a small proportion of tariffs will be rolled back and that phase-2 will only begin after the 2020 presidential election. Importantly, the agreement is NOT expected to be in writing – a major obstacle for negotiations over the past few months with China wanting to remain non-committal on a deal tilted in favour of the US.

Under a microscope, there’s arguably not much of a “big deal” here to alleviate long-term US-China trade policy uncertainty given this is a deal that eschews any of the core issues. It’s also a deal that fails to be translated and written down meaning enforcement and follow-through could be found lacking going into 2020. Therefore, you’d be remiss not to think that markets remain susceptible to substantial knee-jerk reactions should China decide 50bn agricultural purchases, a historic amount for them, might not make the most economic sense. Ultimately, China seems to have outmanoeuvred the US as Trump looks to control the narrative and protect his S&P500 collateral ahead of the fast approaching US presidential election race.

Bethel Loh, Macro Strategist, ThinkMarkets

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