14 to 20 January: Political risks take the driving seat, again

Various risks of political nature linger that drive global market sentiment and thus asset prices. Just to name a few:

• Due to the government shutdown in the US, markets are losing visibility on the outlook for US rates and yields, since the publication of relevant macroeconomic data is delayed (such as retail sales last week).
• No new meaningful pieces of information may be revealed related to the ongoing trade talks between the US and China in the short-term.
• Nobody knows for sure how to capture the magnitude of Brexit’s economic implications or when Brexit may materialise.
• Populist parties could upset the frail political landscape within the EU after the elections are over.

Whilst it is difficult to accurately incorporate political risks in asset prices, the uncertainty and unpredictability will sooner or later translate into higher volatility.

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