Third Quarter Review: Five of the Biggest Stories in the Quarter – Introduction
The year is moving forward very fast and today marks the first day of the final quarter. As I have written before, it is always good to sit back and reflect if you want to be a better trader. In this article, I will highlight the most important things that happened in the quarter and what to expect in the new quarter.
Trade was among the biggest stories in the third quarter. It was a quarter where the United States and the second biggest economy in the world started a trade war. The US placed the biggest amount of tariffs on Chinese goods. They were worth more than $200 billion. China responded by placing tariffs worth more than $60 billion on American imports. In addition, the US moved closer to a deal with Canada and Mexico on a new NAFTA. This happened through a strategy of divide and conquer where the US started to negotiate with Mexico. This weekend, it emerged that the US was close to a new deal with Canada as well. Just last week, the US announced that it was restarting a free trade deal with Japan. If all these deals work, the US will likely team up with the key allies to face China in the third quarter.
In the third quarter, central banks made big news too. The biggest announcement from the banks was from the Fed which made two rate increases. The first rate hike was in June followed by a second one a week ago. In the monetary policy statement, the bank remained bullish on the US economy and pointed to a final rate hike in December. In 2019 and 2020, the Fed pointed to three and one hike respectively. The other bank that hiked in the quarter was Bank of England. This was its first hike since last year. In the statement, the bank pointed to no hike this year until a deal on Brexit was made.
Brexit was another major rate hike this quarter. The biggest news was the Chequers deal, which was agreed by Theresa May’s cabinet. Two of the pro-Brexit cabinet ministers – Boris Johnson and David Davis – left the cabinet after the deal. The deal was also passed narrowly by the parliament. As negotiations with the EU continued, major disagreements on the Chequers deal emerged. In addition, there is a worry that even if the deal is accepted by the EU, many conservatives in parliament will not vote for it. Already, many in the Labour party have announced that they won’t vote for it.
Another big news this month was the second quarter GDP growth of the United States. In the quarter, official government data showed that the economy rose by 4.2%. This was the fastest GDP growth since 2014 and was credited to the increased government spending and the tax cuts by the US administration. While some believe that the growth will hold, many believe that there will be a slowdown in the next few quarters. In the quarter, the unemployment rate continued to fall while the number of jobless claims declined to a 50-year low.
In the quarter, crude oil continued to rise as OPEC continued to reduce production. Brent ended the quarter trading at above $80 a barrel. This was the highest level in more than four years. The high energy prices led to a crash between the OPEC and the United States.
The crash and volatility of the emerging markets increased in the quarter. This started after Turkey crashed with the United States. This led to a further crisis in Argentina and South Africa. These issues led the EM currencies to fall by more than 10% in the quarter against the US dollar.