The BIG, the BAD and the UGLY
As if there is not enough going on over this weekend and Mon/Tues, The EU chose to announce the completion of what EU Commission chief Jean-Claude Juncker described as “the EU’s biggest deal to date”. Brazil’s President Jair Bolsonaro said it was “historic” and “one of the most important trade deals of all time”.
This deal is between the EU and the South American trade bloc, Mercosur. Mercosur currently comprises four Sth American countries: Argentina, Brazil, Uruguay and Paraguay and covers the vast majority of South American economies.
In deep contrast to the current protectionist approach being pushed, even bullied, upon the world by the US administration, this deal is aimed at extending a market for goods and services by cutting or removing trade tariffs, making imported products cheaper for consumers, and boosting exports on both sides.
This deal covers a market comprising nearly 800 million consumers, which apparently makes it the largest deal in the world in terms of the total population of the member countries.
Interesting that this deal has actually taken 20 years to complete! I am sure this is a great satisfaction for Mr Junckers, who is retiring from his position in the EU. But is this BIG news also GOOD news?
Well I guess many will say it is a great boost to the principles of free trade in the current trade war environment. And certainly supporters of the EU and the Euro will be greatly relieved and inspired, but will the environmentalists see greatly increased trade volumes between the Sth American continent and the European continent as “good”? There are always two sides to everything and that is why I headed this one “the BIG” and not “the GOOD”!
This is reserved for the outcome of today’s US/China trade talks. I doubt anyone is truly expecting anything concrete today, but since the trade negotiator teams from both sides have already been meeting for a couple of days, it is highly unlikely that Mr Trump and Mr Xi Jinping would have agreed to meet if it were already clear beforehand that they would have nothing to say at the end of their talks. At least, the US equities markets seemed to think the same and finished on an optimistic note yesterday in spite of the risk with closed markets over the weekend:
However, whatever the outcome of the talks, it will either be bad news for the market or bad news for one or other of the parties involved - but could it really be good news all round? We will know that next week!
Amidst all the G20 and OPEC+ hype, one other important meeting seemed to get overlooked. Iran officials met with representatives of the remaining 5 parties to the nuclear accord that Mr Trump withdrew from. These countries are Britain, France, Germany, China and Russia.
But Iran stated that there was insufficient progress to persuade Iran to back off from its plans to breach the limit for enriched uranium included in the agreement.
Iran is clearly hoping to put pressure on the parties to influence the US to relax sanctions in order to give hope to new negotiations starting. This is very unlikely to happen and the situation as it stands is likely to get even more ugly than it already is.
The new EU mechanism, INSTEX, is apparently now up and ready (designed to allow companies to bypass US sanctions) but there is little interest in using it for anything other than acceptable trades such as medicines. Even China has refused to comment whether it is prepared to ignore US sanctions on oil purchases from Iran.
This is one area that badly needs a solution and a return to negotiating before anything serious and irrevocable happens - an “UGLY” situation indeed…