Riots in Brazil Victor Moriyama/ZUMA Wire

The Politics of Financial Volatility

The world’s political and economic leaders have ranged far and wide in search of reasons for the recent spike in global financial volatility. But they should focus closer to home: Politics is largely to blame – not only in the West, but also in China and emerging markets from Brazil to Russia.

LONDON – Twenty-four years ago, in the midst of an ugly US presidential campaign, Bill Clinton’s campaign manager neatly summed up his candidate’s message: “It’s the economy, stupid.” Today, as investors struggle to understand what is driving extreme volatility in the financial markets, there is an equally pithy explanation: It’s the stupid politics.

Central bank policies have moved from supporting the markets to potentially destabilizing them. Now markets are turning to structural reform and fiscal policy for assistance. In this light, current price movements should be viewed through the spectrum of geopolitics. And it is not a nice view.

Nowhere is this more evident than in the oil markets, where prices have collapsed, with both Brent and Crude now hovering around the $30-per-barrel level. The extent of oil’s fall, and consequent deflationary fears, is cited as a major factor behind overall market turmoil. In January, the correlation between crude oil prices and the S&P 500 reached the highest level since 1990.

To continue reading, register now.

Subscribe now for unlimited access to everything PS has to offer.


As a registered user, you can enjoy more PS content every month – for free.