As of Friday, June 2nd 99% of the S&P 500 companies have reported Q1 earnings. Earnings season is over. On the same Friday, the market saw the employment figures for May (which was mixed, but mostly disappointing), yet still saw the probability of a Fed rate hike climb from 92.3% probability to 95.8% today. The most important scheduled economic release and it’s potential impact on the direction of interest rates is behind us. So what do traders focus on? Gold has been telling you for a month….the focus this week is on geopolitical risk.
What is geopolitical risk? From investopedia: “Political risk (Or geopolitical risk) is the risk an investment’s returns could suffer as a result of political changes or instability in a country”. There’s a trinity of hot subjects in the geopolitical world this week that bear watching as potential causes of “political changes or instability”. Let’s start at home.
James Comey, former FBI director fired by Donald Trump has agreed to testify before the senate intelligence committee on Thursday, June 8th. The questions Comey will be asked by the Senate intelligence committee include whether Donald Trump tried to persuade him to stop an investigation into improper contacts between a top adviser and Russian officials, whether Trump sought to extract a vow of personal loyalty, and whether Comey was fired because he did not comply. Trump has denied trying to make Comey drop the case, but if Comey contradicts him and is supported by other evidence, it would represent potential obstruction of justice by the president and mark a long leap down the road towards impeachment. That clearly qualifies as “political changes or instability”. Markets affected: All of them.
Moving across the Atlantic the UK elections, scheduled for the same day as the Comey testimony have become much closer than UK Prime minister Theresa May anticipated when she called for the election on April 18th. Her party’s lead was 17.8 points at the time and has since fallen to 4 points in some polls. Worst case scenario for May’s Conservative party is the challenger for Prime Minister from the Labour party, Jeremy Corbyn actually wins. More likely however, is neither party wins a majority in parliament and very little gets done in the way of Brexit negotiations. This weekend Britons suffered through a second unfortunate terror attack in as many weeks, but so far there has been no affect on the polls. Markets affected: Gold, Silver, GBP and FTSE 100.
Continue east, a spit in the Gulf Cooperation Council (GCC), with a Saudi lead coalition including Bahrain, The United Arab Emirates and Egypt cutting all diplomatic ties with Qatar. Qatar has been accused by the 3 counties in the GCC and Egypt of supporting terrorism by aligning themselves with the Muslim Brotherhood and Iran. The coalition suspend the use of their airspace to Qatari flights, telling Qatari citizens in their countries that they have 14 days to leave and expelling all Qatari diplomats while recalling their own diplomats from Qatar. They also shut down seascape to Qatar’s ship. Qatar is saying this is unwarranted, but it’s been done anyway. It goes without saying that any excess tension in the middle east is just plain bad. Markets affected: Brent crude, WTI crude, Gold and Silver.
Geopolitics is the most unpredictable of all market moving factors, so strap in. It could be a smooth ride…but I doubt it.