First published on 9 October 2017
The global market economy suffers from an acute case of political disruption.
Where does one begin?
US President Trump tweeted at the weekend that "only one thing will work" for North Korea. What that is remains unknown. If President Trump wants a war, he can make a war happen, but what the markets are pricing is that if he is seen to be wanting a war, then the real threat of a war will get vested interests to step back from the brink and conciliate, so the more a war appears likely the less likely it is to happen, and the real action may be happening elsewhere, like in the Iran - China - Russia US axis, and so it goes on and on. For the rest of the world there appears to be no way of managing President Trump’s global ambition, so it is a case of “wake me up when it's all over”, as the Avicii song goes*, except that everyone is too scared to fall asleep. Buy Facebook.
Europe, meanwhile, continues to struggle with its own political crises, resulting from (what else?) failure of diplomacy. Political discord permeates economic visibility at the national, regional and supra-national level, from the 207-day-long birthing pains of the Netherlands’ new government, to Madrid’s utter response failure to Catalonia’s cessationist sentiment and Spain’s resulting constitutional crisis, to the prematurely withered wholesale attempts of the UK’s Brexit government to re-nationalise UK trade and fiscal interests, against the interests of its closest economic partners in a shared Union.
To add unpredictability to UK political uncertainties, structural questions around the eventual outcome of EU Brexit negotiations raise concerns about Westminster’s future relationship with Scotland and the Island of Ireland, potentially undermining the political integrity of the United Kingdom. It is possible that Her Majesty the Queen is not sleeping too well, too.
Separatism is by definition divisive, and economists are not immune to this. Some have heralded the results of this year’s German and French elections as proof that the EU (“core”) has defied the global tide of populism, in contrast to US and UK political risk. Others feel that the EU’s rigid structures are to blame for the crisis of representation and its results, from Brexit to Catalexit, which makes dis-unification the answer. I (as you might guess) would take issue with both “purist” arguments.
The period of 2016-2018 will go down in history as a period of an acute crisis of democratic representation internationally, from the breakaway vote of an EU bedrock member state such as the UK, to the working class protest vote that brought Donald Trump to the White House, to the rise of cessationist sentiment and neo-nationalism across Europe’s nation states.
Europe’s still emerging political union is no answer to the crisis of political representation, or economic development and welfare inequality, endemic to nations as old as Spain or Greece, or
even the beacon of global democracy – the US. Instead, the meteors of vox populi across the continent tell us more about the EU’s future purpose than about its historic raison d'être. Blaming the EU
for the bankruptcy of post-war socialist endeavours in Europe, or the arrival of global post-China free market economics, is the material of populists' defence of welfare protectionism, from Grexit
to Brexit, but not of economic analysis.
As for the crisis of representation in modern democracies globally, the common denominators among the present-day political economies of the UK, Germany, France, Spain, the US (the G+) unsurprisingly share a common birth place, as well.
As we have written elsewhere, the global economic calamity of a decade ago repurposed the role of the global economy’s main economic management structures and the corresponding sub-architectures of national institutions. From the role of the G20 and the IMF, to the policies of national central banks and regulators, the world of 2017 is very different from the world of 2007.
Political structures, however, failed to adapt to the mega-trends of socio-economic disruption that unfolded in the aftermath of the Global Financial Crisis. They are adapting now.
*It seems appropriate to end with Avicii’s “Wake Me Up” lyrics:
“So wake me up when it's all over
When I'm wiser and I'm older
All this time I was finding myself
And I didn't know I was lost…”
MD & Chief Economist, (g+)economics
©2007 All rights reserved
Whatever the macro-risk financial climate, evolving international economic trends and financial interconnections can create actionable opportunities and real risk management demands. The art of successful investing is predicting the direction of macro risk travel >>>
MarketWatch: How far can stocks rally on dovish Fed? It depends on the data (31/01/19)
FT Market Forces: A weaker dollar favours risk appetite (31/01/19)
Bloomberg TV: Komileva, Todd on the Future of Brexit (16/01/19)
FT Market Forces: Investors in thrall of the market tug of war (07/01/19)
FT Market Insight: Market challenge for the Fed is just beginning (07/01/2019)
FT Market Forces: Investors in thrall of the market tug of war (07/01/2019)
Bloomberg Radio: Komileva says Tensions Between US and China Run Deep (03/12/2018)
FT: G20 caution leaves US stocks treading water (30/11/2018)
FT Market Forces: Ending November with markets stuck on hold (30/11/18)
MarketWatch: As Lighthizer predicts ‘success’ in Trump-Xi dinner, here’s what such an outcome might look like (30/11/2018)
FT: Wall St debates two words in Powell speech: 'just below' (28/11/2018)
EFE: La incertidumbre del Brexit pone en jaque a la economía británica (25/11/2018)
Bloomberg News: Pound Plunge Was Mere Prelude to What May Happen With No Deal (16/11/2018)
MarketWatch: Here's how Brexit turmoil could become a problem for US and global markets (16/11/2018)
FT: A Congress divided: Analysts explain what it means for Wall Street (07/11/2018)
FT: Dollar drops as midterm results dim stimulus hopes (07/11/2018)
MarketWatch: As election clouds clear, get ready for the rush back into US stocks (07/11/2018)
CNBC: Tax cuts have been controversial, but voters didn't seem to care about them (07/11/2018)
FT Market Forces: Gridlock - no escape from trade tension (06/11/18)
Bloomberg Radio: Bloomberg Daybreak with Karen Moskow and Nathan Hager (23/10/18)
Bloomberg TV: Fed Should Be Proceeding Towards Normalization Says G Plus' Komileva (04/07/18)
Reuters: Yields drop as US-China trade tension mounts (19/06/18)
Bloomberg TV: UK Parliament Set for Vote to Decide Brexit End Game (18/06/18)
Bloomberg: Taper Without the Tantrum as Draghi Pulls Off Virtuoso Performance (14/06/18)
FT: Euro under pressure as ECB delivers ‘dovish taper’ (14/06/18)
Bloomberg TV: Komileva says happy to let US economy run hot. Lena Komileva, chief economist at G Plus Economics, discusses Federal Reserve policy and inflation. She speaks on "Bloomberg Surveillance." (28/05/18)
FT: Dollar near 2018 highs ahead of Fed meeting (01/05/18)
Reuters: After Carney surprise, chance of May BoE rate hike down but not out (25/04/18)
Barron’s “Up and Down Wall Street”: Does the Flattening Yield Curve Signal a Recession? (21/04/18)
FT: Fed’s rate signals belie benign financial conditions (22/03/18)
FT: US stocks gain traction on signs of North Korea progress (06/03/18)
Bloomberg Prophets: The Rules of the Game Are Changing for Investors (16/02/18)
Financial Times Insight: Why volatility is here to stay (12/02/18)
FT: European stocks on track for worst week in two years (09/02/18)
FT: US stocks may find support as S&P 500 tests key level (09/02/18)
FT: S&P 500 in correction territory as sell-off continues (08/02/18)
MarketWatch: Stock-market melt-up takes a timeout as bond yields rise (03/02/18)
Business Insider: Wall Street is watching a key recession indicator that keeps flashing (19/01/18)
Bloomberg Opinion | Prophets: The Fed Is Losing Control of the Financial Markets (16/01/2018)
Asset TV: Masterclass Global Outlook - 2018
FT: Wall Street struggles to extend new year rally (08/01/18)
Bloomberg TV: What are the biggest risks facing markets in 2018? (01/01/18)
Bloomberg Best - Radio: The outlook for 2018 (28/12/17)
Bloomberg TV: Komileva Says Markets in State of “Rational Exuberance” (28/12/17)
Bloomberg Opinion | Prophets: Stocks and Bonds Are Sending the Correct Signals (15/12/17)
WSJ: As Fed Tightens, Europe Hangs Loose (14/12/17)
FT: Yellen kept markets calm but 2018 may be rockier (13/12/17)
Bloomberg TV: G+’ Komileva Says BOE Is in 'Holding Period' on Rates (13/12/17)
Milano Finanza: May in limbo, pound under pressure (14/11/2017)
Dow Jones Newswires: BoE Risks Weak Growth, High Inflation, After Rate Rise: G+ Economics (14/11/17)
Dow Jones Newswires: Sterling Price Doesn't Reflect "Extreme" Scenarios - Market Talk (13/11/17)
5 Mega-Trends that will Define the Future of #Finance - outlined by @komileva— CFA Institute® (@CFAinstitute) November 16, 2017
1. Macro-Market Liquidity and Cost of Risk
2. Demographics, Productivity and Economic Imbalances
4. Geopolitics of De-globalisation
5. Regulation and Systemic Risk #EICBerlin @FutureFinance pic.twitter.com/dqJYrdRWfU
MarketWatch: Here’s why investors look too complacent about the Powell Fed (14/11/17)
Barron’s: How the Powell Fed Will Be Tested (11/11/17)
DowJones Newswires: ECB Must Strike Right Balance in Scaling Back Bond Purchases (24/10/17)
Bloomberg: Draghi's Soft Euro Talk Suggests He's Holding Back the Magic (07/09/17)
Dow Jones Newswires: Mario Draghi Says ECB Held Talks on Future of Stimulus (07/09/17)
BBC Radio 4 Today: Eurozone looking healthy (01/09/17)
Investing.com: Are central banks blowing a bond bubble? (21/08/17)
Financial Times Auther's Note: Better left unsaid (26/08/17)
DJ News: Janet Yellen and Mario Draghi Warn Against Regulatory Cuts, Trade Moves (26/08/17)
Dow Jones: Draghi Holds Off on Monetary Policy Clues, Criticizes Deregulation Push (25/08/17)
FT: Euro above $1.19 after Draghi’s Jackson Hole speech (25/08/17)
Bloomberg TV: G Plus' Komileva - Markets Unprepared for Normalization (10/08/17)