Making sense of uncertainty: How markets respond to geopolitical events and structural change 

Soniya Sadeesh, European Rates Strategist at Deutsche Bank

Geopolitical events often dominate headlines, but their impact on financial markets is rarely straightforward. Drawing on the discussion she led during the latest EMMEC meeting, Soniya Sadeesh, European Rates Strategist at Deutsche Bank, shares her perspective on how market participants assess uncertainty, resilience and emerging risks. 

When geopolitical events occur, markets are often expected to react immediately and predictably. In reality, the relationship between events and market outcomes is far more complex. 

According to Soniya Sadeesh, understanding how shocks affect financial markets requires looking beyond the headlines and focusing on the mechanisms through which risks are transmitted across the financial system. 

No single playbook 

The term “geopolitical event” is often used as a catch-all expression. Yet it covers a broad range of situations, from armed conflicts and political instability to cyber threats and other forms of disruption. 

“The key transmission channels can differ significantly from one event to another,” she notes. “There isn’t a generic playbook that can be applied in every situation.” 

This is one of the reasons why assessing the potential market impact of geopolitical developments remains challenging. The same event can affect funding conditions, investor behaviour and market sentiment through different channels, depending on its nature, duration and severity. 

Why market reactions are rarely linear 

Market behaviour is shaped not only by events themselves, but also by expectations. 

“The extent to which an event has already been anticipated matters,” says Soniya. “Positioning and market expectations can significantly influence the way prices react.” 

As a result, market reactions are often less predictable than they appear. Multiple factors interact simultaneously, creating outcomes that are not always intuitive. 

Understanding these dynamics requires considering not only the event itself, but also expectations, positioning and the broader market backdrop. 

New sources of uncertainty 

Digitalisation is creating new opportunities, but it is also prompting market participants to revisit some long-held assumptions around funding and liquidity. 

“New forms of digital money, challenger banks and the ability of social media to amplify risk sentiment can affect the stability and predictability of deposit bases,”  

At the same time, policymakers and financial institutions are increasingly exploring ways to channel savings towards the real economy. Together, these developments may gradually alter the availability and predictability of traditional funding sources. 

This is also why stablecoins and central bank digital currencies (CBDCs) are attracting growing attention. 

Rather than being purely technological innovations, they have the potential to influence liquidity management, funding strategies and balance sheet dynamics. If adoption grows, market participants will need to assess not only the opportunities these developments create, but also their implications for financial stability. 

A resilient environment 

Despite heightened geopolitical uncertainty, funding conditions have remained relatively stable. As she outlined, this reflects the relatively strong starting position of much of the banking sector, supported by ample liquidity and robust regulatory metrics. 

The resilience of broader risk assets has also helped contain contagion effects, contributing to relatively stable market conditions. 

Taken together, these factors suggest that funding markets have so far absorbed recent shocks without significant disruption. . 

The value of dialogue 

In an environment characterised by uncertainty and rapid change, access to diverse perspectives becomes increasingly important. 

This is one of the reasons why forums such as EMMEC play a valuable role. 

“It’s invaluable to have a forum where participants can share perspectives on a range of topics in real time and through a shared lens,” says Soniya. 

For her, one of the most valuable aspects of the discussion was the diversity of views around the table. Bringing together different institutions and areas of expertise helps participants challenge assumptions and better understand emerging developments. 

In fast-moving markets, that collective perspective can be just as valuable as any individual analysis.