Here’s How Political Events Might Influence the Financial Markets

The world is changing fast as a wave of populist sentiment continues to steer the political discourse to the right. Many people are exasperated by the economic woes of rising debts, unemployment, inflation, and increased strain on social services. The rise in acts of terrorism and the migration crisis is also making people less accommodating to strangers. Hence, the populist voice is having a field day whipping the electorate into a frenzy in order to take control of the political landscape.

However, the events taking place in the political landscape often have a resultant effect in shaping the direction of the global economy. Globalization is already taking a hit as the populist voice advocates an increase in isolationist foreign policy. This piece seeks to explore how some events in the political landscape can affect the financial markets. I’ll also try to provide insights on how to take proactive steps in order to leverage political moves to their trading advantage.

Events Are Already Underway In Europe

Right-leaning events are already underway in Europe, as the European Union sits in a precarious position to negotiate its future. Last year’s Brexit vote in which 51.9% of people in UK voted to leave the EU opened the proverbial Pandora Box on how the EU is most likely an association of strange bedfellows. The Brexit vote caused the pound to fall; it is yet to recover, and forex traders who made the right bets against the pound will most likely be smiling all the way to the bank.

A couple of months later, Italy had a related vote in which citizens voted against a referendum aimed at reforming the constitution. Italy’s Prime Minister Matteo Renzi has said that he’ll step down after the failed referendum, and the Euro is in a weak position because the populist now have another win.

It doesn’t matter whether you are involved in forex, stocks, commodities, or cfd trading, you’ll need to stay proactive, because political uncertainties will continue to move the market in Europe. Traders with exposure to the forex markets and derivative trades will also find themselves in a better position to leverage political instability in Europe to make winning trades.

Pay Attention The U.S. Political Landscape

Traders and investors will need to pay more attention to events in the U.S. political scene because politics will have a material effect on moving the markets this year. The election of Donald Trump as the President of the United States speaks volume about how politics will move the markets this year. There is no doubt that Wall Street and the most vocal U.S. media have largely dismissed the possibility of Trump’s victory in the polls.

Many Wall Street analysts also stuck their necks out with predictions about how the markets will crash in the “unlikely” event of Trump’s victory. Trump won the election and stocks began to fall as investors reacted to the prevailing fears about increased uncertainty under Trump’s presidency. However, the decline was short-lived, and stocks rebounded to an impressive rally.

The major reason for the rally in U.S stocks is that Wall Street is now speculating that Trump’s policies could have a positive effect on the markets. In essence, if you have exposure to assets in the U.S. markets, you’ll need to stay tuned to reliable news sources so that you can make informed decisions.

Disclaimer – The article above expresses the views of its author, Luis Aureliano. It does not necessarily express the political views of CNA Finance, or any particular member of the CNA Finance team.

Luis Aureliano is a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks, and emerging markets.

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