Markets Brace for Geopolitical Risk

  • Persian Gulf troubles coincide with U.K. vote and Comey event
  • ‘Sombre start to a huge week for markets,’ analyst Innes says

Investors looking for a return of market volatility might see those chances increase this week, with geopolitical risks looming large.

The decision by a four-country alliance led by Saudi Arabia to cut diplomatic ties with Qatar is just the first in what will be a busy week of events that have the potential to drive big moves in wider markets, joining a growing list of hot spots that includes the Korean Peninsula and the latest political scandal in Brazil.

Also: Morgan Stanley, Goldman Sachs say Treasury market is ripe for shocks

Here’s a look at what’s on the worry list for investors:

Qatar Tensions

Saudi Arabia, Bahrain, the United Arab Emirates and Egypt have all said in statements they will suspend air and sea travel to and from Qatar, escalating tensions that started over the country’s relationship with Iran and support of the Muslim Brotherhood.

The move pushed Brent crude up as much as 1.6 percent in London. The commodity has had a bad year so far, falling 11 percent on concerns about global supplies. There’s no immediate evidence that shipments from the Persian Gulf will be disrupted, however.

UK Heads to the Polls

U.K. voters are set to vote on June 8, with Prime Minister Theresa May’s once 20-point-plus lead shrinking amid a series of attacks that has threatened to make terrorism the dominant theme of the campaign’s final days.

A surprise victory for the opposition Labour party would, for one thing, augur expansionary fiscal steps that could alter the outlook for U.K. yields and the pound, while a hung parliament — where there is no majority party — could see a lack of clarity on Britain’s policies for some time.

But there’s a “growing sense amongst traders that this could be U.K. election 2015 ‘deja vu all over again,’” according to Stephen Innes, senior Asia-Pacific currency trader at Oanda Corp. in Singapore.

The pound surged after Conservative David Cameron won a majority in 2015, in contrast with polls at the time. Cameron would later resign after the 2016 Brexit referendum.

For now, the pound is showing it’s “desensitized” to the shocks of terrorist atrocities, Innes wrote in a note Monday.

Comey to Testify

Fired FBI Director James Comey is set to testify before the Senate Intelligence Committee on Thursday about his conversations with President Donald Trump regarding suspicion of Russian interference in the 2016 election.

The long-anticipated testimony may drive further moves in U.S. equities and the dollar in a reprise of market swings in May. Assets tumbled at the time on news Comey had written a memo alleging Trump made a request to drop an FBI investigation into former National Security Adviser Michael Flynn.

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Senior Currency Trader and Analyst at OANDA
Stephen has over 25 years of experience in the financial markets and specializes in Asian currencies at OANDA. After having started his trading career with NatWest Bank, he is currently based in Singapore as a Senior Currency Trader and Analyst with OANDA, focusing on the movement of the Aussie Dollar and ASEAN Currencies. Stephen has an extensive trading experience in Interest Rate Futures, Money Markets and Precious Metals. Prior to joining OANDA, he worked with organizations like Cambridge Mercantile, Nat West, Garvin Guy Butler, Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes
Stephen Innes

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