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Geopolitics Matter. What Should Financial Markets Expect in 2019?

Brexit, US-China trade war and Middle East are in focus
I’m an entrepreneur with experience in finance and journalism. I’m fascinated with the intersection of current digital footprints, modern entrepreneurial eco-systems, and world events, particularly when they culminate in subtle, or significant shifts in the global business terrain. I run a blog about IT in finance at http://techandhumanity.com/, which is a very broad topic indeed, ranging from IT trends to the impact of technology on people.
I’m an entrepreneur with experience in finance and journalism. I’m fascinated with the intersection of current digital footprints, modern entrepreneurial eco-systems, and world events, particularly when they culminate in subtle, or significant shifts in the global business terrain. I run a blog about IT in finance at http://techandhumanity.com/, which is a very broad topic indeed, ranging from IT trends to the impact of technology on people.

During 2018 we have seen how political decisions made some impact on the financial market. Regardless if it’s some leader’s statement taken out of context by other countries or a decision that crippled some currency the financial market is the one that makes the biggest hit.

At the beginning of every year, I try to make an educated guess as to what will happen in 2019. I made these guesses based on past events and hope they will be correct.

There are tons of political decisions that have and will impact the financial market, but today I will focus on only three of them. These are the ones that are having a global impact at the beginning of 2019, so people in the financial sector should keep an eye on them.


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US vs. China

As soon as president Trump stepped in office, he started an investigation into China’s trading practices. In mid-2018 the US government imposed tariffs on products from China. The Chinese government reacted to that in the same manner by imposing their tariffs. The trade war between the US and China resulted in some changes in the stock market. This impact was especially felt in the Chinese market which caused their stocks to decline by about 20% from the highest in 2018. The US stock market didn’t have the same impact and kept the stock steady over the year.

At the beginning of December 2018, the two economic giants made a deal to suspend the newly imposed tariffs. The point of this is to find a solution that won’t cripple both economies.

There are two outcomes to this dispute: both countries coming to an agreement or the war continues. The first outcome is positive for everyone. Having two of the greatest economies in a clash can be devastating not only to them but to the world as well, which brings us to the last outcome. Last month the IMF warned that if the war continues the result will be a world poorer and more dangerous. According to the expert in day trading Meir Barak, this trade war will have a long-lasting effect no matter when it stops. Nowadays Chinese economy has the slowest pace of growth in comparison to nearest years. The whole world if affected by the US-China trade conflict.

Brexit

What was once the EU member that set a record for the highest investment in fintech companies in 2015 is now the country looking to get away from the union. Neither side benefits from this, which is why both sides agreed in December 2018. The goal of this agreement is to act as a guideline during the process of leaving the EU. It includes the UK’s debt to the EU, citizenship and much more.

As the hour approaches, we already see some changes in the UK economy. The first big hit was in 2016 right after the Brexit voting. At that point, the British pound reaches a record low in the past 30 years. Looking into 2019, I think, we expect to see the financial market taking a big hit. Investors will avoid UK due to more favorable conditions in countries that are a part of the EU. Brexit also means that current investors will be driven out of the UK.

Middle East

The Middle East has always been in the center of trades. It also has been in the center of global politics. Putting these together means that one controls the other. In this case, the politics control the oil export and trade. For more than half a century OPEC has been the glue that sticks together the member countries and kept the oil prices steady. Back in the 80s, during the war between Iran and Iraq, OPEC was the organization that managed to keep the costs leveled.

With the geopolitics beginning to weaken OPEC’s influence over the oil prices and production, we see volatile oil prices over the past several years. The alliance between the US and Saudi Arabia should provide some guarantee for US oil production. On the other hand, we have the US and Russia that are not on the greatest terms. This triangle is closed with Saudi Arabia and Russia’s deal in September 2018 to increase oil production to maintain rising oil prices. Both countries agreed to extend this deal well into 2019 These restrictions will certainly have an impact on oil prices and might even impact the US’s oil production.

These are only a handful geopolitical matters that impact the financial markets. Every decision that a politician makes impacts the economy. Some impact domestic, others impact foreign economies. What I know for sure is that this year we will see a lot of economic shifts caused by geopolitics.