Should markets be watching Game of Thrones?
- The media loves political fights. The drama of a political soap opera is as fun to watch as Game of Thrones. Despite this, financial markets are rarely moved by politics - beyond an initial instinctive reaction.
- Tensions with North Korea, punctuated by periodic missile tests, had little impact on asset prices. The South Korean equity market continued to move higher, ignoring political noise. The row between Qatar and Saudi Arabia was ignored by the oil market. The seeming death of US President Trump's healthcare reform did weaken the dollar. The reform's failure was seen as a sign of Trump's fading influence. The dollar was weakening anyway. Politics just pushed the dollar down a little faster.
- Investors prefer economics to politics. Politicians matter much less than they think. In the near term, the health of the economy is driven by jobs and prices. Politicians have very little impact over jobs and prices in the near term. Politicians can affect longer-term trend growth. In theory, investors should discount long-term growth in their investment decisions. In practice, near-term growth carries a higher weight when investors make choices. Today's positive global economics outweighs politics in driving financial markets, as it should.