KUALA LUMPUR, MALAYSIA -
Media OutReach Newswire
- 21 February 2025 - The beginning of 2025 witnessed a complex
geopolitical scenario in Europe, with the most prominent events expected
to impact financial markets. The intersection of political instability,
economic tensions, and global trade dynamics makes it crucial for
traders to be vigilant and reactive. Understanding these events is
essential to forming well-informed trading strategies. Kar Yong Ang, a
financial market analyst at Octa Broker, identifies Europe's recent key
events and highlights the key points to keep an eye on.
The Russia-Ukraine conflict and market stability
The prolonged conflict between Russia and Ukraine continues to breed
uncertainty across European markets. Sanctions and geopolitical tensions
have led to supply disruptions in the energy sector, particularly in
Germany's industrial sector.
In contrast, exporters in Europe face higher competition from China,
degenerating trade imbalances, as well as pressure in the manufacturing
sector. Irrespective of the challenges facing European markets, major
industries in the region
diversified supply chains, accelerating shifts toward alternative sources of energy to neutralize long-term threats.
Donald Trump's presidential campaign and its global repercussions
European markets are increasingly anxious about Donald Trump's return to
the U.S. presidency. His economic policies, which previously disrupted
international trade, are again in the spotlight. European companies,
particularly those that operate in renewable energy, have
expressed concerns
regarding possible tariffs that can slow down investments in wind farms
and solar projects. The euro has also shown volatility against the U.S.
dollar since investors are
unsure of future trade terms.
'Trump administration's return is injecting volatility into the
markets, particularly in sectors reliant on stable U.S.-EU trade
policies, especially after the President started to impose new tariffs.
Traders should closely monitor shifts in tariffs and trade rhetoric, as
these could drive substantial Forex and commodity price movements', Kar Yong Ang explains.
Germany's election and its potential market impact
Germany's federal election on 23 February 2025 marks a watershed moment
for European markets. The outcome of the elections can potentially
redefine fiscal and monetary policies while impacting energy reforms,
China-Germany relations, and long-term investment plans.
Major policy shifts
are anticipated, particularly in the area of addressing underinvestment
in key industries. Export-based industries are gearing up for potential
disruptions, with initial government reports indicating a
decline in Germany's trade volume in 2025 due to increasing global tensions.
France's national debt crisis and its implications
France's escalating national debt is a problem for the Eurozone, as
rising government borrowing jeopardises investor confidence. As of Q3
2024, France is in the top three countries with the highest governmental
debt to GDP (113.8%) and its growth dynamics (+1.4 pp in Q3 24 compared
to Q2 24), according to
Eurostat.
With each rise in debt-to-GDP ratios, concern about the sustainability
of fiscal policy is causing sovereign bond investors to tread carefully.
France's financial vulnerability also
alarms the Eurozone banking system, which is still heavily exposed to sovereign debt markets.
Kar Yong Ang notes,
'France's fiscal trajectory is a crucial determinant for Eurozone
stability. Investors should pay close attention to policy announcements
regarding debt management, as any sign of strain could reverberate
across European financial institutions'.
Banking sector risks and asset class correlations
Geopolitical risk and tighter financial conditions are contributing to
compounding threats
to the Eurozone banking system. Market volatility is still an issue,
and highly leveraged or poorly cashed institutions are particularly
vulnerable. The interconnectedness between financial institutions raises
systemic threats, so localised instability can translate into
broader market consequences.
As geopolitical events unfold, correlations among asset classes are
shifting.
European equities have held up well, even as global markets contend
with volatility. Experts predict that while short-term risks persist,
recovery trade opportunities will emerge,
particularly in undervalued European equities and commodities.
In Q1 2025, key economic events to look out for were the nature of U.S.
trade policy, the Russia-Ukraine conflict, German election results, and
French budgetary policies. While all of them presented significant
opportunities, they also imposed volatility risks. Traders who monitored
these could have adjusted their risk management strategy accordingly.
To successfully navigate market volatility, one may apply portfolio
diversification. Such an approach allows one to deal in several assets,
abandoning volatile ones in times of market turbulence.
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Disclaimer: Trading involves risks and may not be suitable for all
investors. Use your expertise wisely and evaluate all associated risks
before making an investment decision.