Politics remain a key focus for markets, but the latest developments in Europe are positive. In France, the first round of the presidential election ruled out the least market-friendly outcome, and although eurosceptic Marine Le Pen is in the run-off as expected, polls suggest reformist Macron should win. The snap election called in Britain for June is a material positive game-changer for Brexit negotiations. Beyond politics, focus has been on fading conviction in so-called Trump trades – higher inflation expectations and interest rates and buoyant risk assets – following speed bumps on the US domestic agenda and increased geopolitical tension.
continue reading below: Monthly-Notes-May-2017.pdf
Investors are focusing more on politics and have become more selective in what they buy, the Bank for International Settlements (BIS) said and this could be a latest signal that markets may be breaking free from a dependence on central bank support. The BIS said in its quarterly report that there had been increased discrimination across asset classes, regions and sectors, in contrast to the cross-asset “herd behaviour” that has characterised recent years. “Politics tightened its grip over financial markets in the past quarter, reasserting its supremacy over economics,” the BIS said.
continue reading below: Monthly-Notes-April-2017.pdf
Economic Overview – March 2017
The rise of populism in politics is not a new theme and has been gradually building in the years since the 2008 Global Financial Crisis, but exploded in 2016 with the UK referendum on Brexit and the U.S. Presidential election. Financial markets withstood the shock from Brexit because the Bank of England moved quickly to ease monetary policy, while in the case of the U.S. election it was the prospect of fiscal policy easing and deregulation that spurred risk markets higher. In both cases, the rise of populism has increased uncertainty for financial markets. In 2017 the European political environment will be put to the test with elections to be held in the Netherlands, France and Germany while the situation in Italy is fluid and could result in an early election. For financial markets and investors each of these poses an event risk.
Continue reading below:Monthly-Notes-March-2017