November 11, 2016    4 minute read

How Politics Influenced The Markets In November 2016

Volatility And Uncertainty Take Hold    November 11, 2016    4 minute read

How Politics Influenced The Markets In November 2016

Everyone remembers how in June 2016 the pound sharply rose and suddenly fell after the Brexit vote. This is not the first time that political world changes have influenced the financial markets in unpredictable ways.

The Impact Of The High Court Ruling

The pound/euro exchange rates have hit a four-week high on November 4th after the news broke on Thursday regarding the High Court ruling on Brexit. Essentially this means that Prime Minister Theresa May is unable to trigger Article 50 without the parliament’s support. Moreover, the pound also gained against both the euro and the dollar on the news which took exchange rates to their best level for the pound/euro pair since early October providing a window of opportunity for euro buyers. Everyone remembers that the pound had already fallen sharply on Brexit fears.

Uncertainty Woes

Furthermore, uncertainty is spreading across the UK, and it remains unknown whether this Brexit will be a “Hard Brexit” one or not. Therefore, this situation of market volatility and price instability is set to continue for a while.

Goldman Sachs recently claimed that it might move to Frankfort if the situation continues in this direction. Introducing the uncertainty of a general election into a volatile economic situation in early 2017 would be vehemently opposed by the City and the business community. But this week buyers pushed the pound from $1.21 to $1.25, its highest level since the “flash crash” of October 7th.

Screen Shot 2016-11-05 at 11.26.49The scenario is not limited to the pound volatility. This situation saw banks begin to shift operations out of the UK, but most of their staff will have to wait several months to find out how many thousands of them will be asked to move to fledgeling financial hotspots like Paris, Dublin and Frankfurt.

Destination Milan?

The Financial Times published an article claiming that Milan could become the new London after Brexit. In France, the Finance Minister Michel Sapin said that US banks had confirmed they would move some activities out of Britain to other European countries as the UK prepares to leave the EU.

In fact, senior city bankers from US banks Citi and Morgan Stanley already said that jobs would have to move back into the EU if Britain was shut out of the single market, while HSBC has warned that it could shift 1,000 investment banking jobs from London to Paris if the UK leaves the EU.

Stuart Gulliver, the HSBC Chief Executive, told Sky News:

“We have 5,000 people in global banking and markets in London and I could imagine that around 20% of those would move to Paris.”

This is not the only main uncertainty that causes the market to witness quick changes in prices and volatility.

Uncertainty has increased across Wall Street trading desks, with investors glued to the polls that suggested Donald Trump had made significant strides in denting Hillary Clinton’s lead ahead of Tuesday’s vote.

Now, the S&P 500 has climbed as much as 0.5% on Friday before deflating towards the end of the day and ending 0.2% down as the recent election of Donald Trump as President of the US caused an earthquake in the market. These are hard times for a world economy that is facing big issues and changes.

The historic low interest rates, which have created the “liquidity trap” and the desperate solutions for pumping up the investments, the oil industry supply crunch, Brexit and the reassessment of diplomacy and trade agreements with the US all mean that it is not so easy to predict what is going on in the world.

Historic Lows

In conclusion, an S&P 500 analysis revealed that this is the longest losing streak since December 1980 and only the 14th time since 1928 that the main US equity gauge has fallen for nine consecutive days. The index fell on Friday as investors overlooked a strong jobs report focusing their attention squarely on the presidential election.

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