Trade deal, Brexit to boost markets

Local markets will benefit from a short-term boost in global investor sentiment in the wake of the US-China trade deal.

Local markets will benefit from a short-term boost in global investor sentiment in the wake of the US-China trade deal, as the Conservative Party’s landslide win in the British election lifted expectations the country would finally resolve its long-running Brexit nightmare.

In the longer term, Australia’s export industries such as agriculture are also expected to get a lift from a high-quality free trade agreement with Britain, according to experts.

ASX futures were 39 points, or 0.6 per cent, higher, mostly due to the “phase one” trade deal between China and the US that lifted markets around the world.

However, Boris Johnson’s emphatic win played a role, as well, with investors now betting that Britain will leave the EU on January 31 after parliamentary approval for the Withdrawal Agreement Bill.

That leaves less than a year to negotiate a trade agreement with the EU by December 31, 2020.

Trade Minister Simon Birmingham said last week that if Britain met its Brexit deadline, formal negotiations for an FTA could begin within weeks.

Senator Birmingham said that as soon as Britain was ready, Australia would “shift into formal negotiations towards an Australia-UK free trade agreement, and we would look to conclude a deal as quickly as possible”.

An informal bilateral working group had been discussing an FTA for the past two years, reflecting Britain’s position as our second-biggest investor after the US.

AMP Capital head of investment strategy Shane Oliver downplayed the prospect of a quickfire FTA, saying Britain would initially focus on a deal with the EU — the destination of 45 per cent of the country’s exports. An FTA with the US was likely to be the next priority.

“An FTA with the UK post-Brexit could mean benefits for Australia, in particular farmers, although it’s going to be a fair way off — 2022 at the earliest, I would think,” Dr Oliver said.

Mr Johnson’s triumph unleashed some animal spirits in Britain, with the FTSE 250 index climbing 3.4 per cent to an all-time high and adding £36bn ($70bn) in value.

The pound was worth $US1.334 ($1.94) — its highest level since March and verging on an 18-month high.

Meanwhile Wall Street’s S&P 500 Index added a mere 0.23 points, or less than 0.1 per cent, to reach an all-time high of 3168.80 following the US-China trade deal. Media reports signalling that a deal was close spurred a rally a day earlier that sent the S&P500 and the Nasdaq to record highs. That likely led to the muted reaction in the US market on Friday.

Mark Whelan, head of ANZ Bank’s institutional division, said the bank had been planning for all potential Brexit outcomes for more than three years since the referendum.

“Regardless of what is agreed with the EU, or passed by parliament, our position will not change — our international network means we can continue to operate and service our clients with operations or investment needs in Europe,” Mr Whelan said.

Global asset manager T. Rowe Price said the election result was “just the end of the beginning”.

The real work, it said, was negotiating the future trading relationship between Britain and the EU, which had the potential to “become very complicated”.

The reason was the divergent views on what the negotiations would achieve, and even what Britain wanted to achieve from them.

“Until that becomes clearer, asset prices will be determined by the weighing up of contrasting sentiments,” the asset manager said.