International financial markets are immensely influenced by noticeable tensions in Europe, the just accelerating Trump politics and the slowdown in growth of the Asian market. As part of the Campus for Finance – WHU New Year’s Conference 2018, we want to guide you through a quick tour around the financial world, its current developments, and future implications. sign up now
Our first stop is Europe’s biggest financial hub: London. Article 50 of the Lisbon treaty has been triggered and the UK will leave the EU within the next two years. The UK seems to have entered Brexit negotiations relatively untroubled, proven by the strong performance of UK banks after the initial drop in stock markets following the referendum and considering the level that the FTSE 350 Banks Index is trading at. Nevertheless, a steep decline in the value of the pound sterling, an all-time low savings rate and a peak in the consumer price inflation in the UK demonstrate extreme levels of uncertainty. A hard or soft Brexit will determine the answer to the open questions of immigration, trade, currency and the impact on financial markets.
Roughly 7000 kilometers across the Atlantic Ocean, the US witnesses a substantial change in politics.According to CNBC, the uncertain future actions of Trump “foreshadow” declines in investment, output, and employment in the United States. But so far, Trump’s protectionism succeeded: US stocks have increased $1.6tn in market value and global equity markets have tacked on $2.5tn. More discrepancy between politics and market reaction is hard to find: The backlash of the US Dollar and the US market remains outstanding.
Going further west, we will find the world’s largest economy which has enjoyed an incredible growth of 14.2% in 2007. Since then, China’s markets have settled significantly by merely announcing growth rates of 6.5% per year. China’s faineance could be a major driver of another global financial crisis. Investing in other emerging countries to enhance their growth as a countermovement to China’s flagging will not satisfy the world’s thirst for higher, faster, and infinite economic growth.
Europe’s fundaments are shaking, the US takes the role of the wrangler, and Asia is at a historical turning point. These risks and uncertainties have impacts across borders that are hard to measure and nearly impossible to predict. Uncertainties and low volatility - is this paradox just the calm before the storm?