Geopolitical Risks Loom as Markets Soar and Crypto Surges

Watch the yield. The Bank of England warns that a sharp rise in bond yields from “a sudden crystallisation of geopolitical tensions” would cause “significant losses” for non-bank institutions such as pension funds and hedge funds, forcing them to sell assets, further amplifying the hit.

Where could such a crystallisation emerge from? Perhaps the fall of a government in France? Hardly the end of the world, but what if RN wins power? The CAC is down 1% as France’s government looks close to collapse. The euro is also underperforming, with EURUSD gapping down overnight and holding onto losses early doors Monday, lasting just about clinging to 1.050. Rassemblement National, which ought to have formed the government based on the popular vote, said it would not hesitate to bring down the government of Michel Barnier. We could see a confidence vote this week, which the government would lose. It’s a topic we looked at in last year’s Watchlist – ungovernance. Watch for more in 2025.

Elsewhere, the DAX and FTSE 100 are trading on a flat line. The Dow and S&P 500 jumped to fresh records on Friday, a holiday-shortened session. The Dow finished up 7.5% in November, whilst the S&P 500 rose 5% for the month. The Russell 2k, the index of small caps which is the most likely to benefit from Trump’s tax cuts, rallied almost 11% for the month.

It's going to be awfully difficult for anyone to get in front of this bull market. Evercore ISI reckons this year-end squeeze could push the S&P 500 to 6,300 by the end of the year, driven by “a pro-cyclical expansion of breadth across Small Caps, Consumer [stocks], Financials, Industrials and Technology”.

Microsoft is facing an FTC anti-trust probe. But don’t worry about it says Wedbush. “For Microsoft which has already been through its battle with the US Government we believe this FTC suit is much more bark than bite and ultimately will fad[e] into the background once a new FTC chair is likely named by Trump for January,” the firm told clients. “There will still be questions and scrutiny of Microsoft and Big Tech but right now the Khan era ending is the best news for Big Tech which has been in the constant unrelenting focus of Khan and the FTC over the past few years.”

Meanwhile, the UK’s Institute of Directors said that optimism among its members had fallen to the lowest since the start of the Covid pandemic after tax hikes by Labour.

And whilst everyone is talking about Bitcoin at $100k, check this monster rally – a $100bn move that has taken XRP to become the third largest cryptocurrency. November saw record inflows to Bitcoin and Ether ETFs.