Vive la Revolution
2017 is a critical year for European politics not to mention the triggering of Article 50 and Trump.
2017 has already been an extraordinary year for market shaking events and which looks set to continue. It is unsettling times for many nations across the globe as political instability continues to be of major concern for businesses both at home and abroad.
With the latest “revolutionary” act coming in the form of a snap UK election, it is imperative that you consider global factors and prepare for the risks that come with these political and economic events.
Take a spin on the Wheel of Volatility to find out how the key factors behind each leader and their policies could impact currencies, interest rates and commodities.
The world's most powerful central banker, Fed Chair Janet Yellen could have a significant impact on market sentiment, with her Fed policy plans an influence on stock market sentiment and a key driver of bond market and USD moves.
The Fed's own projections indicate three interest rate rises in 2017, which after March's hike has left markets pricing in the next move in June and the third hike towards the end of the year. Therefore a major focus for markets will be the pace of normalisation in policy rates. Whilst more recently the prospect of the Fed beginning to run down its $4.2trn balance sheet has also gained increased attention.
As President of China, Xi Jinping is one of the key figures on the global economic stage. For markets, a key question will be how China manages the rebalancing of its economy whilst preventing a material slowdown in growth. Secondly markets will be watching to see how the Chinese authorities deal with financial stability risks, where recent policy changes have led to some weakening in investor sentiment.
Additionally news on the health of the economy and market sentiment will continue to cause volatility in commodity markets given China's importance in the space.
The 8 June General Election saw the Conservative Party fail to recapture its overall majority, let alone increase it substantially as had been planned. Discussions are now centring on an agreement with the DUP, with both sides in principle looking for a ‘confidence and supply’ arrangement, whereby the NI party agrees to support government in motions of confidence and other major votes such as the Finance Bill. Although no agreement has yet been stuck.
Not surprisingly there has been a huge amount of speculation as to Mrs May’s future, not least from Tory MPs themselves. Theresa May remains in nominal control as PM, in what could be considered to be a quasi-caretaker role. For how long is anybody’s guess, but the dust should be allowed to settle before the party chooses to move in any direction.
North Korea remains a wild card for global sentiment and one of the greatest sources of geopolitical risks. Whilst tensions between North Korea and the US may remain high for an extended period of time, we judge that an armed conflict on the Korean peninsula is very much a tail risk, albeit a very high impact event.
China is likely to play an important role in developments on the peninsula, given its opposition to any military action, meaning any ratcheting up of tensions between the US and North Korea could strain relations between the two superpowers.
Germany's Angela Merkel is competing to stand for her fourth term as Chancellor in the 24 September Federal elections. Polls remain relatively close, but Merkel's party, the CDU, has opened a 12% lead over the SPD in recent weeks. As the EU's largest economy, Germany's voice is likely to be a key influence in the UK's EU exit negotiations with the EU.
Noteworthy was Angela Merkel's recent speech to the German Bundestag which took a harder line on Brexit, warning over the complexity and UK ‘illusions' over talks, as well as the sequencing of negotiations, although it remains to be seen whether this was just posturing ahead of the German elections.
Donald Trump's efforts to implement fiscal policy plans remain one of the key focus themes for markets in 2017. Hopes of tax reforms including a reduction in corporation taxes have helped the S&P 500 to record highs this year and strengthened the USD since the election. However, given Congressional obstacles it remains to be seen how many of Mr Trump's big ticket campaign promises such as healthcare (Obamacare repeal) and tax reform will be enacted, as well as funding a proposed border wall with Mexico.
Whether or not Mr Trump is able to deliver on his policy promises is likely to influence investor sentiment.
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