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According to Richard Franulovich, Head of FX Strategy at Westpac, “markets are now grappling with the potential fallout for global activity stemming from the coronavirus outbreak but there are two other important risks to contemplate in coming months.”

Key Quotes:

“The Democratic presidential nominee process kicks into high gear with the Iowa caucus 3rd Feb and the New Hampshire primary the following week 11th Feb. They should bring renewed scrutiny over 2020 US election risks, especially if market friendly centrists fare poorly.

Sanders has strong polling momentum going into these first primaries and has past form too, substantially outperforming expectations in 2016 with a very narrow loss in Iowa and a comfortable win in New Hampshire.

By contrast the spending policies of Biden, Bloomberg and Buttigieg are all estimated at less than $10 trillion on a 10-year basis. Their revenue plans are also substantially more modest.

There is a very understandable risk that China might trim imports from a range of countries and divert them to the US in order to meet commitments to raise imports from the US by $200bn over 2017 levels (where substitution is possible). Slide two shows China’s 2017 imports of agriculture, energy and manufacturing goods as share of the origin country’s GDP.

On the agri side, NZ, Brazil and Australia are the most vulnerable; on the manufacturing side Taiwan, Korea and Malaysia are the most vulnerable, while various African and Mideast countries are the most vulnerable to any diversion by China in the energy area.”