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A shift in the rules governing world order and increased fragmentation among global alliances in defense, trade, and finance is expected to raise the security risk premium across different asset classes and regions. This assessment, shared by Axel Merk, highlights the growing impact of geopolitical shifts on financial markets.
The heightened security risk premium reflects broader stresses that have already shaped market dynamics, from the increased scrutiny of Fed balance sheet maneuvers and debates over a potential return to the corridor system, to persistent uncertainty in key economic indicators such as payroll forecasts. As geopolitical fragmentation continues to challenge established frameworks, these underlying pressures remain central to investor sentiment.