By Jenna Owen is a business, finance and technology writer.
The modern world is characterised by constant change, from both predictable events and those which come unexpectedly. Whenever there is a major event or shift in a nation’s economy, the currency of the country – and those connected to it in some way – fluctuates. In many cases, they recover back to previous price levels, but some events can lead to more substantial shifts which can cause longer-term impacts. Over time,mapping some of the major historic political events has led to a greater understanding of how currencies are likely to react to similar events in the future. This can give traders and investors greater insight into the likely performance of certain currencies ahead of time.
What is clear is that gaining a greater understanding of historical data can help both investors and traders to make more informed choices when it comes to reacting to major political events. Here, we explore three key areas; the influence of politics, the potential for market manipulation and finally, speculation and risk.
In addition to natural disasters and major conflict, politics is a key influential factor in the performance of a currency. It is not just a reflection of the events taking place right now, but provides an indicator of what might be expected in the future
Looking back at significant events in the political landscape, we can see that they have caused changes in the respective nation’s currency. For example, the 1995 election of French President Jacques Chirac led to fluctuations in the franc, and the fall of the Berlin Wall in 1989 led to a dramatic decline in the value of the Deutsche mark. And in the UK, the 1998 Good Friday Agreement led to a strengthening of the pound.
Fast forward to 2019, we can see that Brexit uncertainty caused significant peaks and troughs in the value of the pound at key points in the negotiation process. This includes a spike following Theresa May’s departure announcement, suggesting that markets were pricing in the likelihood of her successor taking a harder line regarding Brexit negotiations. Additionally, President Trump’s healthcare bill collapse,Theresa May’s withdrawal deal and Boris Johnson speaking out in favour of the UK leaving the EU prior to becoming Prime Minister, were all instrumental forces in the subsequent currency movements that followed these announcements.
With a new withdrawal deadline of 31 January 2020 now in place, the continued progression towards Britain leaving the EU is by no means certain. This uncertainty has led to continued fluctuations in the pound which has led to both gains and losses depending on the risk levels of the traders involved. For some, it has been considered a ‘speculators’ haven’, where those willing to risk trades on the unknown can benefit from the risk aversion of more cautious traders. In most cases, the resilience of the pound has been its defining characteristic; reports suggest that despite the Brexit drama, it has been the best performing G10 currency over the past six months.
Traders should always be wary of the cause of significant stock market movements, as they may not always be a true reflection of market sentiment. Market manipulation occurs when certain parties use their influence to sway the markets in their favour, essentially forcing trades to take place which may not have happened without their intervention.
The stock market prides itself on being a transparent and fair place for trading, however, it is not completely immune from some particularly large players utilising the system to their advantage – whether this is acting on inside information or forcing the markets to move in a certain direction in order to benefit their investment portfolio. Alongside insider trading, there is also the risk of price rigging – although this is illegal, so action is often swift and heavy when it is uncovered. Recently, Barclays, RBS and several other banks were involved in a £1bn forex rigging lawsuit, after their activities were alleged to reduce competition in markets for 11 countries, including the pound, US dollar and the euro.
Additionally, there have been several instances during the Trump administration where significant trading activity has taken place just before major political announcements, leading to millions and in some cases billions of profit for the ‘lucky’ traders. Although these trades were not considered suspicious by the Chicago Mercantile Exchange, the Securities and Exchange Commission or the Commodity Futures Trading Commission, it has led some to speculate that these trades were the result of insider information.
Speculation and Risk
No one can see into the future, but likely outcomes can often be predicted by looking at market reactions to similar events in the past. It is clear that monitoring the impact on currency movements associated with historical political events can help to provide investors with an indication of how markets may react in the future, allowing them to formulate the most appropriate response and put measures in place to minimise any potential losses.
That said, past events can only ever provide a word of caution. The nature of trading will always lean towards uncertainty and risk, and there is no way of knowing exactly how certain events are going to impact the markets, by how much, or for how long. Certain events can also lead to a domino effect, making the overall outcome even less predictable. However, trading over the long term has traditionally been much easier to assess as it focuses less on the ‘knee jerk’ reactions of the moment and more on overall performance over an extended period of time. It could be argued therefore, that the resilience of certain currencies during trouble periods or events is perhaps the most valuable indicator for a trader or investor who is contemplating whether to stick or twist.
Energy stocks drag down FTSE 100, IG Group slides
By Shivani Kumaresan
(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.
The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.
Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]
“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.
“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.
British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.
IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.
Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.
Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)
Wall Street bounce, upbeat earnings lift European stocks
By Amal S and Sruthi Shankar
(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.
The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.
All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.
Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.
Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.
Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.
The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.
“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.
The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.
“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.
Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.
Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.
Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.
Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.
(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)
Miners lead FTSE 100 higher on earnings cheer
By Shivani Kumaresan
(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.
BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.
Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.
“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.
The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.
The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.
Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.
Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.
WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)
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