Spin the Wheel
Last year the UK voted to leave the EU and President Trump became the new President of the USA; both defied the polls and status quo.
This year marks the most volatile political risk environment for businesses driven by: rising nationalism; upcoming elections; succession concerns in several countries and the threat of terrorism.
With a snap UK election being announced more recently, businesses need to be aware of, and prepare for the risks that come with all of these political and economic events and in particular their impacts on the markets and therefore potentially your bottom line.
Take a spin on the Wheel of Volatility to find out the key factors behind each leader that could impact currencies, interest rates and commodities.
Janet Yellen
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.
Top Trump Scores
- Janet Yellen Score
- EUR/USD impact 10
- USD interest rate impact 10
- Commodity impact 10
President Xi
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.
Top Trump Scores
- President Xi Score
- USD/CNH impact 8
- CNY interest rate impact 8
- Commodity impact 9
Teresa May
Current polling puts Theresa May's Conservatives firmly in pole position for 8 June's General Election, with the Tories expected to enjoy a landslide victory, possibly securing the largest Tory majority since Margret Thatcher in 1983.
Such a result would likely strengthen Theresa May's hand in passing Brexit legislation through the UK Parliament, potentially giving sterling an additional leg up given that it would cut the risk of opposition MPs and Tory rebels holding up bits of necessary legislation. However, with formal negotiations yet to begin there are still many hard talks to overcome, the tone of which will contribute to the direction and volatility in currency pairs such as GBP/EUR.
Top Trump Scores
- Teresa May Score
- GBP/EUR impact 9
- GBP interest rate impact 7
- Commodity impact 1
Kim Jong Un
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.
Top Trump Scores
- Kim Jong Un Score
- USD/JPY impact 7
- JPY interest rate impact 6
- Commodity impact 4
Angela Merkel
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 slight 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.
Top Trump Scores
- Angela Merkel Score
- GBP/EUR impact 7
- EUR interest rate impact 5
- Commodity impact 1
Donald Trump
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.
Top Trump Scores
- Donald Trump Score
- EUR/USD impact 8
- USD interest rate impact 7
- Commodity impact 4
