Global financial markets keep getting wrapped up in politics

Politics has a stranglehold on financial markets, pushing them to react like puppets on strings. Every new headline is a trigger, every political decision a potential grenade.

Investors are scrambling to figure out whether they should look at balance sheets or ballot boxes to predict the next market meltdown. This week was no exception, as global markets waded through a cocktail of economic data, international tensions, and political drama.

US equity futures slipped ahead of a flood of data. Investors are waiting for the Federal Reserve’s favorite inflation measure, jobless claims, and an update on economic growth. But Wall Street is tuned into how Washington, Paris, and even Jerusalem are steering the financial ship.

Tariffs, chaos, and falling stocks

Donald Trump’s return comes with promises of tariffs and economic disruptions. Mexico’s president isn’t taking it lightly, warning of severe economic fallout if new tariffs hit. Canada’s finance minister reminded everyone how Canada hit back dollar-for-dollar the last time Trump imposed tariffs on steel and aluminum.

The auto industry is bracing for impact. General Motors took a 9% nosedive—the biggest drop since 2020—after analysts at Wolfe Research estimated that Trump’s proposed tariffs could add $3,000 to the price of a new car.

European automakers like Stellantis, Volkswagen, BMW, and Mercedes could lose a combined $6.7 billion in earnings if tariffs on Mexican and Canadian imports go through. Bloomberg Intelligence says Stellantis and Volkswagen are the most vulnerable.

Despite all this, tariffs aren’t 100% guaranteed. In Trump’s first term, he barked about tariffs on European cars but didn’t bite. This time, analysts say they could be used for broader deals on issues like immigration and drug smuggling. Either way, the mere threat of tariffs is sending shockwaves through markets.

Citigroup analysts warn that French bond markets aren’t looking great either. The spread between French and German 10-year bonds is at its widest since the euro-area debt crisis in 2012. It could stretch even further, to a full percentage point, as political tensions heat up.

Prime Minister Michel Barnier is in a standoff over his budget. Marine Le Pen and her far-right National Rally party have threatened to bring down his government with a no-confidence vote if demands aren’t met. The fallout has left French bonds exposed, with investors retreating to safer German debt.

Chaos in markets meets geopolitical shocks

A fragile ceasefire between Israel and Hezbollah went into effect Wednesday after weeks of US-mediated talks. It offers a temporary break in tensions, but investors are wary about what’s next for the region. Any escalation could roil energy markets and spark more instability.

Meanwhile, the tech sector is struggling. Dell and HP shares dropped 12% and 9%, respectively, after weak earnings reports signaled that the personal computer market’s recovery is stalling. Cybersecurity giant CrowdStrike wasn’t spared either, with a 5% drop following a lackluster fourth-quarter forecast.

Across the globe in Japan, Hello Kitty’s parent company, Sanrio, saw its stock plunge 14%—the worst drop since 2014—after announcing that major shareholders, including its president, would sell their stakes.

But it’s not all bad. Among different markets, the cryptocurrency industry has made a comeback, and stablecoins are leading the charge. The total market value of stablecoins has hit a record $190 billion, clawing back ground lost since infamous collapses in 2022.

Bitcoin is still sitting way above $90,000. Ether has crossed $3,500. Crypto stocks weren’t left behind. MicroStrategy jumped 6%, while Coinbase edged up 2%.

Despite all of this, the political angle remains the real story. “Elections do have consequences,” as Barack Obama once said, and this week’s market action proves it.

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