The European election, volatility and the US: Why does it all matter?

“Elections matter for markets,” says Holger Schmieding, Chief Economist at Berenberg Bank. “They can change the course of economic and fiscal policies. Even more so, they can reduce or exacerbate geopolitical risks. Ahead of any election, uncertainty about the outcome can make investors cautious.” 

These potential changes have the power to trigger volatility events.

Just remember 2016. First, the May vote on the UK leaving the EU, and in November, Donald Trump was elected as the US President. Or take 2022, when UK Prime Minister Liz Truss announced massive tax cuts, which led to chaos in financial markets and her resignation. Markets are fragile. 

So, what’s in store for the remainder of 2024? This year has the potential to have more than one big election volatility event, as nearly half the world’s population and GDP will vote. 

Years of multiple crises, financial and debt crises, the Corona years, Russia’s invasion of Ukraine and the following spike in inflation have divided many societies. A growing number of voters is moving into the camp of populists. At the same time, governments are re-arming because of the war in Ukraine and geopolitical tensions in Asia and the Middle East. 
The results from those votes will shape public policy in every corner of the globe, affecting how we trade, invest and live in the end. Hence, 2024 might see several macro events which could trigger higher volatility. 

Let’s have a look at the major upcoming events. 

Europe votes from 6 to 9 June 

The 2024 European Parliament elections will see a major shift to the right in many countries, with populist radical right parties gaining votes and seats across the EU and center-left and green parties losing votes and seats. In particular, economic and monetary affairs, the internal market, and consumer protection are areas that might be challenged as the margins of compromise were thin already. That’s, of course, crucial for budget questions – think support for Ukraine and weapon deliveries – and economic integration – think deepening of the capital market union. 

UK votes on 4 July  

The UK, now on its fifth prime minister since voting to quit the EU, is expected to opt to lean left instead and perhaps reassess its ties to Europe and its “special relationship” with Washington. In addition, leftish governments tend to increase spending. After Truss the UK might hold back from these kinds of endeavors, but investors should be prepared. 

US votes on 5 November 

The US elections are likely the story of the year, with a good chance – at least when writing this piece – that Trump might enter the White House for a second time. This could have unforeseen consequences for defense and NATO, for the support of Ukraine, and, hence, ultimately, for the end of the war. In addition, tensions with China might increase even more, and trade policies in general are bound to be distorted. On top comes the increasing debt burden of the US – so far, investors seem to be unfussed. But what if this changes? 

“The US election could be a serious source of volatility, but more so for European markets than for the US market,” Schmieding explains. “Under both Trump or Biden, US fiscal policy would likely remain expansionary. But the risk that Trump may again threaten trade wars or stop all US aid for Ukraine would be a much bigger headache for Europe than for the US.”

So, in a nutshell, this year is full of political suspense in a world that is often described as being in the middle of a poly-crisis.