A few weeks ago, our blog argued that people were paying too much attention to the price of oil as an oracle for the markets (Stop Looking at Oil). It is too easy to be a gadfly naysayer, petulantly arguing against what’s popular without offering anything constructive or useful which could, in turn, be subject to external criticism. In other words, if we’re going to complain about what’s getting attention, we have to recommend something instead.
Let’s think about the markets and volatility. Trade policy between China and the United States is obviously the primary catalyst for the recent jumpiness, but there is not going to be any immediate resolution. There’s no ticking clock and no deadline. Moreover, the key negotiators in this dispute have been prone to flights of fancy, and changing their minds. So, it almost doesn’t matter what the news says, because there aren’t going to be any credible negotiations for a while. While we’ve vociferously and repeatedly argued that trade policy between the US and China is critically important to economic outcomes, it isn’t a problem where attention needs to be paid right now because there isn’t going to be any actionable outcome for the near term.
So, where should we pay attention? What news event is large enough to have an impact on the state of nations, but also likely to resolve in a definitive state in the near future? In short – it’s Britain. The G7 meeting has brought the upcoming British Exit from the European Union to the fore. The relationship between Prime Minister Boris Johnson and the EU was already acrimonious, and the EU demand for 39 billion pound debt-settlement has assuredly reinforced the hard-liners on both sides of the channel. Without changes, Britain right now is on a collision course with a no-deal exit. As a reminder, about ½ of Britain’s trade – both their imports and exports – go through the EU. Finally, timing is a real factor. Hard Brexit has already been delayed twice (it was originally slated for March 29, 2019), and October 31st – the new target date – is looking to be spooky for investors indeed.