Weekly Economic Overview: Geopolitics Take Center Stage

In most cases, the financial markets tend to slow during the summer months as the doldrums set in and trading volumes reduce liquidity levels.  This year has broken those trends, with geopolitical turmoil causing potentially significant in global stock prices that are still trading near record highs.  Continued Brexit negotiations, numerous presidential cabinet changes within the Donald Trump administration, and hawkish military rhetoric from the Kim Jong Un regime in North Korea have put investors on edge — putting stock markets at risk and prompting a round of buying in safe haven assets like gold and silver.  

These trends are significant because they could ultimately guide market sentiment as trading volumes return to full strength in September — and this could be enough to set the broader tone for the remainder of this year.  The heightened market volatility that this can create is best approached using a  demo trading account as this can help investors to limit risk while still trading under live market conditions.

Stock Benchmarks

With geopolitics setting the tone for investors, the assets that are most at risk appear to be in the stock markets (which are still trading at long-term highs from the global perspective).  The FTSE 100 has lost almost 2% this summer as the uncertainties of the latest round of Brexit negotiations have kept many investors on the sidelines and prevented the establishment of large positions in hedge funds focused on the UK region.  

The index is still higher by 3.4% for the year but this is notably lower than many other regional benchmarks (i.e. the S&P 500 in the US) and this can be explained largely by the political stalemates that have been caused by Britain’s decision to leave the European Union.  This is likely to continue until markets feel as though clear resolutions have been reached and this suggests continued underperformance for prospects for the FTSE 100 as we head into the final months of the year.

Real Estate Markets

Real estate markets have fared somewhat better in the mix, with London real estate prices only showing marginal losses.  A recent Forbes article suggested that London has fallen to the number 2 spot in the Ten Best Cities For Global Real Estate Investors, which suggests that housing and commercial real estate prices have held up relatively well even with all of the disruptive headlines created by the Brexit uncertainty story.  

At the global level, the SPDR Dow Jones Global Real Estate ETF (NYSE: RWO) is still showing a gain of 2.65% for the year, suggesting that property owners (both at the residential and commercial levels) have been largely shielded by the from the recent declines in the broader markets.

Real estate markets continue to hold up well and so asset exposure in these areas is also something that should be considered.  We are still seeing strong trends from investors in Asia and the Middle East looking to buy into the UK and European markets at both the residential and commercial levels.  Precious metals assets should not be forgotten here, as gold and silver continue to benefit from high levels of demand.  This demand has been particularly strong in Asia (i.e. China and India) and we expect these bullish trends to continue well into next year.  

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