Muted Venezuela response raises question of when geopolitics moves markets

Investing.com -- Global investors have taken the latest developments in Venezuela largely in stride, prompting Deutsche Bank to ask what it takes for geopolitics to move markets.

Analyst Henry Allen said events in the country “have dominated market attention since the weekend,” but noted that “apart from a few directly affected assets, such as Venezuelan bonds and U.S. oil companies, global markets have been almost completely unfazed.”

According to Deutsche Bank, this reaction is consistent with a long-standing pattern.

Allen wrote that “geopolitical events only have a long-term market impact to the extent they affect other macro variables, like growth and inflation.”

When they do not feed through to broader economic indicators, he said, “the market impact tends to be isolated to directly affected assets and won’t transmit elsewhere.”

The bank pointed to historical cases that did produce a meaningful shift in global markets.

These included Russia’s invasion of Ukraine in 2022, the Gulf War in 1990 and the oil shocks of the 1970s.

In each instance, Allen said, there was “a sufficiently large oil price spike to affect global inflation and push central banks in a hawkish direction.”

Those spikes also created “a negative supply shock that hit growth, and hence company earnings and equities too.”

By contrast, Deutsche Bank believes shocks that lack such an economic transmission channel have “seen a muted market reaction, even if they’ve been highly significant in geopolitical terms.”

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