The next couple of weeks in the US presidential election will be very volatile for the financial markets due to high levels of uncertainty.
This is probably the most divisive US election in recent times. Markets are trying to figure out which direction to head when either candidates is declared winner.
Judging from the outcome of the first presidential debate between the two candidates, it was assumed that Mrs Hillary Clinton won the debate. On the back of that, we saw a massive rally on the global stock market and the US dollar.
One interesting currency was the Mexican peso. The currency rallied by more than 2%. It should be noted that before the debate, as Mr Trump was leading in major polls, the Mexican peso plunged to a record low against the US dollar. Most of this could be attributed to his policies regarding renegotiating the North America Trade Agreement and clamping down on immigration, most especially from Mexico by building a wall.
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Furthermore, political uncertainty in Europe is another event that will drive volatility into 2017 and beyond. The Italian referendum is coming up later in November which is likely to put an end to Prime Minister Matteo Renzi’s tenure, and Italy might also be on its way out of the European Union.
The German election is also coming up later in 2017. Angel Merkel is currently behind in most of the polls. Elections in France are coming up in 2017 which seems to be hard to call between the left wing and the right wing, considering the refugee crisis and series of terrorist attacks on France. All these political events are likely to have a big impact on the European Union and European economy at large which will affect the global economy also.
Another factor which is already driving market volatility is the European Banks. There seems to be crisis in European banks at the moment. Deutsche Bank, Europe’s largest bank, was fined by the US department of Justice to the tune of $14 billion for its mortgage policy during the housing bubble. This has affected the bank in a negative way – shares are currently trading at an all time low and the bank also declared that it won’t pay dividend for the next couple of years. This is quite similar to other European banks like Commerzbank, Monte de Paschi, and Credit Suisse.
If these problems persist, it might lead to a crash and the downfall of the European economy.