Research shows impact of geopolitical events “have tended to lead to short-sharp selloffs”

Deutsche Bank research on geopolitical events:

• Over recent decades, geopolitical events have tended to lead to short-sharp sell-offs (around -6% on average) lasting around 3 weeks, before the index then recovers back to prior levels within another three weeks.

On current events, the unprecedented drone and missile attack from Iran on Israel over the weekend:

• risks are undoubtedly building on this front, but from relatively low levels versus long-term history.
• It feels like the direction of travel is for more global tensions over the quarters and years ahead, but we have to remember that individual geopolitical events have tended to see a lot more negative press/discussion/worries, relative to the eventual price action.
• The risk is we eventually hit a tipping point of geopolitical risk as the world becomes increasingly fractious, but until we get to this point the market pricing template of the last several decades is hard to ignore.

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Are we in the ‘its going to get worse before it gets worse’ stage?

This article was written by Eamonn Sheridan at www.forexlive.com.