With Egypt, the surprise was the lack of bloodshed and the relatively peaceful resolution to the protests. While Egypt has an uncertain future, at least they now believe they have a future and that should help them in transition. Oil prices and risk initially spiked on the protests and then prices dramatically came down in response to the outcome.
Libya is the opposite.
Reports of the military shooting protestorsand Qaddafi's son striking a militant stance indicate that this will not end well. Oil companies stating they will evacuate their workers calls into question whether Libya will continue to produce their 1.5 million barrels per day of oil. Oil has risen almost 10 percent in the last 48 hours and global stocks markets are down 1-2%.
Along with the Middle East risk, both the United States and the Euro Zone have to resolve serious fiscal and financial issues in the next 6 weeks. The U.S. will not only have to decide if they will fund the federal government by hiking the debt ceiling, but also create a budget for where those monies will be going. Europe will have to find a structure for their permanent (post-2013) EFSF or bailout fund that all nations must be in agreement to pass. With this, they will also have to agree to new fiscal rules that punish nations who overspend.
It's unlikely that either of these situations will be resolved by the end of March. This will generate demand for safe haven investing like buying US Treasury securities and selling global equities. The US dollarwill be initially mixed as there isn't a clean play with the ECB talking about raising rates earlier than expected to deal with inflation and Moody's downgrading its outlook to negative for Japan. However, I still believe the US dollar will outperform against most currencies during this time frame.
We are now in the "Risk-Off" danger zone for the year.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.