China’s military is conducting large scale exercises encircling Taiwan this week, showcasing its ability to blockade the self-ruled island and signaling Beijing’s growing military assertiveness in the region. Geopolitical issues drive markets and there's been a bunch breaking stories with the China/Taiwan news being some of the largest.
What we know is the People’s Liberation Army (PLA) launched the drills on December 29 under the codename “Justice Mission 2025,” deploying warships, fighter jets, bombers, rocket forces and other units around Taiwan’s airspace and waters. The exercises are intended to rehearse joint naval, air and missile operations and to demonstrate China’s capacity to cut off Taiwan from external military support or supplies in a crisis. Across multiple designated zones around the island, the PLA conducted live fire exercises and sea air coordination drills which is probably the most concerning. Officials in Beijing describe the operations as a necessary measure to safeguard China’s national sovereignty and security, and as a stern warning to Taipei’s government and outside powers which seems like a false flag in this humble author's opinion.
If we take a looks from a finical perspective, world stock markets traded mostly lower during end of the thin holiday sessions. European and Asian markets slipped modestly, with indexes like Germany’s DAX and U.S. futures easing. in the most recent trading sessions. Interestingly, Taiwan’s own stock market (Taiex) rose on the day of the drills, suggesting investors there did not see immediate economic damage or perhaps priced in the event as political risk that didn’t escalate into real conflict. I think this could be used as a catalysts to keep pressure on metals and stocks, as we end the year.