Geopolitics and fiscal policy weigh on financial markets - CaixaBank Research

CaixaBank Research notes that geopolitical tensions and fiscal policy are combining to weigh on financial markets. Rather than a single shock, the pressure reflects two persistent forces: uncertainty around international conflicts and trade relations, and the shifting fiscal stance of major economies as governments balance spending needs against debt sustainability. Together, these factors feed into risk sentiment, influencing how investors price equities, bonds, and currencies.

For markets, the key channel is uncertainty. Geopolitical risk can sharpen volatility and push investors toward perceived safe havens, while fiscal policy shapes the outlook for growth, inflation, and government borrowing. When deficits are seen as widening, bond yields may come under upward pressure; when fiscal support is expected to fade, growth expectations can soften. The interaction matters more than either factor alone.

What to watch: how geopolitical developments evolve, and whether fiscal plans are tightened or loosened in coming months. Clearer direction on either front could reduce the uncertainty currently weighing on sentiment.