This week has a lot of politics in it, and markets are rarely that good at pricing political risk, Chief Economist at UBS Global Wealth Management Paul Donovan argues.

Markets focus on politics in the US and Europe

"The US presidential debate may make investors pay attention to political risk earlier than is normal in the US political cycle. Because so much attention has focused on the suitability of the candidates for office (rather than their policy positions), this debate might actually matter."

"Inflation is one real world issue that has had political. Politically, inflation is an emotional issue not a rational issue—consumers focus on price levels of high frequency purchases. Reports of price discounting in food items profit-led inflation retreats are likely to impact political perceptions far more than official data."

"The UK prime minister and the leader of the opposition are set to debate this week as well. Markets do not think there is much political uncertainty in the UK. We conclude the week with the first round of the French parliamentary elections. Market uncertainties there are specific (who forms the next government in France?), and more general (the rise of prejudice politics in Europe)."