This is how political and geopolitical events impact markets
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To gain an edge in any market, you need to have a good understanding of the factors that influence price movements in it. For the sake of structure and convenience, it is recommended to sort those factors into different categories. Markets can be moved by a wide range of economic, political, technological, social, and even cultural influences. Political influences, in particular, are quite potent in moving markets since they tend to have a drastic effect. These are just a few prominent examples of such an effect.
Statements from politicians
Nearly everyone in the investment environment has experienced the impact of tweets published by former president of the United States, Donald Trump, on markets. When he commented that the dollar was too strong, markets responded, and the dollar plummeted. When he announced that he would impose tariffs on $300 billions worth of Chinese imports, market participants also responded by selling different assets.
An analysis of several thousands of his tweets showed that they do move markets, albeit on the short term. In other words, if you are a short-term trader, or investor, you need to pay attention to tweets by key figures today (not Trump, as he is no longer on Twitter), and assess how those tweets can potentially impact your portfolio.
Most brokers offer trading platforms that also present recent important events in a built-in tool, including statements from key figures, so that you can easily tweak your trading strategy accordingly.
Key elections and referendums
Elections generally have a considerable impact on the markets. Analysts usually say that the first year after a new American president is elected tends to be weak for stocks, since the new president feels safe in his position. According to this theory, markets do recover afterwards and peak in the third year.
This theory, like many others in finance, has its exceptions. The first year of Biden’s presidency was positive for stocks, for example. That does not necessarily mean that Biden performed well, though. Recovery from the pandemic which had already begun under Trump, and the long-term bull market, are among the factors at play.
Key referendums also matter. The Pound Sterling took a serious hit after the UK voted to leave the EU. It did not end there, as it took months for the Sterling to regain some strength.
Events impacting oil producing countries
Countries like Saudi Arabia, Canada, and many others rely to some extent on oil in their revenues. That is why the turmoil that involved Libya in recent years caused fluctuations in the price of oil. Geopolitical tensions tend to have an impact on the price of oil, as it is a vital commodity for the global economy.
Summary
Around the world, financial markets are more connected than they have ever been and any shocks in one location can have a significant effect on another, even if it is on the other side of the globe. Thus, strategists must study the global geopolitical landscape carefully and construct their portfolios accordingly. Otherwise, their portfolios might be prone to numerous unexpected risks.
