Weekly Risk Outlook

Weekly Risk Outlook
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Israeli central bank to decide on interest rates. New home price data set for release in the United States. American banks to face new liquidity regulations. AirAsia crash creates potential fallout. Brazil’s president set to begin a second term. All in this week’s GRI Weekly Risk Outlook.

Israeli Central Bank Meeting

The Bank of Israeli is meeting on Monday to set the country’s interest rate. The Israeli shekel has fallen sharply in the second half of 2014, coinciding with domestic political turmoil and the fall of the governing coalition. However, the shekel has been viewed as overvalued by many currency watchers and its weakening may be a boon for the export-led Israeli economy. A weaker currency may lead to pass-through inflation, but prices actually fell in November and a small uptick in inflation is unlikely to be a significant detriment to the economy. Israel’s benchmark interest rate is currently at 0.25%, down from 1% where it began the year.

U.S. Home Prices

On Tuesday S&P/Case-Shiller will release its index of U.S. home prices for October. The index measures the prices of residential real estate in 20 cities across the United States. Home prices are up for 2014, but at a rate much slower than that seen in the previous two years. Prices remain well below the highs seen in 2006. Home prices are a critical economic indicator in the United States and the index has taken on increased importance in recent years due to the link between home prices and the global financial crisis.

New Liquidity Rules to Take Effect in the U.S.

Thursday will mark the beginning of the New Year and the start of enhanced liquidity requirements for large U.S. banks. The liquidity requirements were created by several U.S. agencies as part of the country’s obligations under the recent Basel Committee on Banking Supervision agreements. Banks should be well prepared for the rules implementation but may have to make small adjustments to their mix of assets. The rules are known as the liquidity coverage ration or LCR and regulators have suggested their intent to expand the rules to other institutions over time. Their impact on large banks should be monitored for insight into possible future regulations on other institutions.

Potential Fallout from AirAsia Crash

AirAsia Flight QZ8501 has gone missing off the coast of Indonesia. At this articles writing, the cause of the accident remains unclear. The crash is unlikely to have broad economic consequences, but will certainly be another blow to the regions already battered airlines. Malaysia Airlines experienced a 33% drop in bookings after it lost a second plane earlier this year. AirAsia (also headquartered in Malaysia) is likely to face a similar decline. The combined effect of two Malaysian based airlines having crashes in such proximity may once again raise questions about airplane safety in the country and region generally, affecting tourism and travel. However, it is impossible to fully assess the economic consequences until more is known about the cause of the crash. Weather seems to be the leading theory at the moment, but other causes including foul play have not been ruled out.

Brazil’s Dilma Rouseff to be Sworn in for Second Term

On Thursday Brazilian president Dilma Rouseff will be sworn in for a second four-year term. Rouseff faces a host of challenges including a recent batch of corruption scandals that have implicated Rouseff’s Workers’ Party, the state oil giant Petrobras, several international contractors, and the main opposition party. Brazil’s economy has also struggled to recover since the global financial crisis. The economy grew at a paltry 0.1% in the third quarter of 2014 (well below expectations). Rouseff will also have to make difficult cuts to keep budget deficits under control, which could put her in a tough political spot since her campaign had largely centered on doing more for Brazil’s poor and middle class.

The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions impact economic outcomes.

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