How the world’s political unrest is affecting trading
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Donald Trump’s Twitter feed is horrific, unmissable, illuminating – sometimes all of these at once. This prism into his mind shows many sides to his personality, but it is never self-deprecating, never negative or critical of his policies or presidency. It’s been a year that’s as turbulent as one would have predicted.
But there’s one aspect of his term that is less spoken about by his critics who might hate to acknowledge anything positive that’s occurred since November 8 last year – America’s industry. On August 2 the Dow Jones hit 22,000 for the first time, an average up more than 3,600 points since his victory. Trump was unashamedly bombastic about the average, which has continued to perform well through all the news of Puerto Rico, North Korea, war hero widows and more, standing at more than 23,000 at the time of writing. Unemployment stands at its lowest rate in 44 years in the US, since the days of Nixon. A good year, the 45th president would no doubt assert.
Meanwhile, in Europe, the financial picture is less predictable. Negotiations around Brexit and Spanish unrest are counteracting one another; in late October the pound rose slightly against the Euro following a higher than expected consumer confidence index; in September it hit a one-year high; while in June it had experienced a spectacular and brutal sustained fall in the wake of the election, nose-diving by more than 2.3% in a single morning. Some companies already saw trading losses of more than a third in the year following the Brexit vote, not withstanding the fact that others had risen.
The Government has not recovered from the repercussions of June 8, and with each new round of Brexit negotiations the future becomes less clear still. The deal with the EU, to encompass trading conditions, borders and the Northern Ireland issue, will be crucial.
Should negotiations collapse resulting in no deal, commentators believe that Britain would be trading under World Trade Organisation terms, which would likely result in the immediate imposition of tariffs across a huge number of sectors. The Independent writes that these terms would further lead to a loss of ‘passporting rights’ for banks in the City of London, restricting their right to business across the continent and leading to an apparent restructure of financial services across the city.
Furthermore, according to the Independent: “Under the WTO rules scenario, the Treasury’s modeling expects unemployment to rise by 820,000 in two years, Sterling to fall by 15 per cent, and inflation to rise by 2.7 per cent”
There’s also another aspect of the unrest, and another ‘country’ (should it get its way) that might pull out. The issue of Catalan independence is a looming powder keg for Spain and the EU, essentially pitting Madrid against Barcelona. The consequences, for the both the Spanish economy and its psyche, could be catastrophic, but as yet unknown.
And what happens if either the UK and/or Barcelona’s moves should be successful – will other nations take note and follow suit, leading to a domino effect and upheaval? What would the effects be, in the short term and long-term? It’s difficult to really know, but vigilance and covering all bases, by investing in trade currency, stocks, ISAs and perhaps even cryptocurrency, might be the way forward. One of Trump’s most famous quotes is: “What separates the winners from the losers is how a person reacts to each new twist of fate.” That may apply to investors as much as politicians.
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