The past few months have been dominated more by politics than economic news. A new government with a radical agenda has formed in Italy, triggering a seismic re-pricing of ‘peripheral’ eurozone sovereign bond spreads. Meanwhile, an established government was toppled in Spain, but the market barely blinked.
Japanese and British Prime Ministers Shinzo Abe and Theresa May have come under significant political pressure, but both remain in post. However, there will be a reckoning in financial markets should either of them fall as investors will be forced to reassess the fate of ‘Abenomics’ and Brexit.
On the geopolitical front, there has been increased tension in the Middle East following the unilateral withdrawal by the US from the Iran nuclear deal and an historic summit between the leaders of North Korea and the US. However, the most important political theme has been the ebb and flow of tensions over international trade.
